The US index of leading economic indicators fell during April, the first drop in seven months, pointing to a moderating pace of expansion.
Lower stock prices, rising jobless claims and a dip in consumer confidence contributed to the 0.4 percent decline in the Conference Board's index, a gauge of the economy's likely performance over the next three to six months. The index had risen 0.1 percent in March, and April's decrease was twice what analysts had forecast.
The index last fell in September, when terrorists attacked New York and Washington. While the economy has rebounded from a recession that began in March 2001, a statement by Vice President Dick Cheney that further attacks are "almost a certainty" drove down share prices. Companies that are reporting higher orders, such as National Semiconductor Corp, are still eliminating jobs to safeguard profits.
"The signal from the indicators is that the recovery is developing quite slowly," said Ken Goldstein, a Conference Board economist. "The recovery in the industrial core remains weak. The consumer sector has seen income growth cut by employment cutbacks and moderating growth in wages."
The US government's budget surplus narrowed in April to US$67.2 billion from US$189.8 billion a year earlier, the Treasury Department said. Lower tax withholding rates and a weak economy depressed receipts. Seven months into the fiscal year, the government is running a US$66.5 billion deficit, compared with a US$165 billion surplus in the first seven months of last year.
Concern about profits also drove down stocks. The Dow Jones Industrial Average fell by 124 points, or 1.2 percent, to close at 10,229.50. The NASDAQ Composite Index fell by 40 points, or 2.3 percent, to 1,701.59.
Treasury securities rose, as the Conference Board's report bolstered investor expectations that Federal Reserve policy makers will keep interest rates unchanged at least until mid-August. The 4 7/8 percent note that matures in February 2012 gained almost 1/2 point, pushing down its yield 7 basis points to 5.19 percent. A basis point is 0.01 percentage point.
The economy expanded in the first quarter at a 5.8 percent annual rate, the fastest in two years. Growth will probably cool to a 3.1 percent pace this quarter as consumer spending slows and business investment is slow to pick up, according to the latest Blue Chip Economic Indicators survey.
Fed officials say the economy is likely to benefit from low inflation and improved efficiencies.
"It looks to me right now that we have clearly healthy growth in productivity in the economy," Gary Stern, president of the Fed Bank of Minneapolis, said. "That's a plus."
Combined with "moderate growth in demand, that would seem to imply continuation of low inflation and improving profitability over time," Stern said in an interview.
Stern is the latest voting member of the Fed's policy-setting Open Market Committee to suggest the central bank may hold off on raising interest rates for some time. The benchmark overnight bank lending rate has been at 1.75 percent, a 40-year low, for the past five months.
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