Data Not Good for U.S. Economy Going into 2008

Data from several key U.S. economic indicators were released late Tuesday and early Wednesday that paint a picture of an economy that may struggle to keep its head above water going into next year.

On Wednesday, the New York-based Conference Board reported its closely-watched monthly leading indicator index dropped 0.5 percent in October, more than the 0.3 percent decline predicted by analysts at both Reuters and Dow Jones. The index is a compilation of 10 economic indicators that attempts to look at the U.S. economy from a forward-looking point of view.

Seven of the 10 indicators slipped in October, including large declines in permits for homebuilding, rising jobless claims and eroding consumer confidence. "The data are pointing to a continued slow economy," Conference Board economist, Ken Goldstein, said in a statement. "It might even slow a little more after the holidays."

In other forward-looking economic news, the Federal Reserve’s Open Market Committee – the group that sets interest rates – late Tuesday released minutes from its October meeting that included an expanded economic forecast for 2008. Fed officials cut their growth forecast in 2008 to a range of 1.8 percent to 2.5 percent, down from the previous forecast of 2.5 to 2.75 percent released in July. Some Fed officials were even more pessimistic, putting growth down as low as 1.6 percent next year.

The weak forecast was backed up by the Reuters/University of Michigan Surveys of Consumers for November released Wednesday. The Consumer Sentiment index was 76.1 in November, down from 80.9 in October, and down sharply from the 92.1 reading from November 2006. Consumer spending growth will "nearly come to a halt" for the rest of 2007 and into the first few months of 2008, according to the survey, which added that the "risk that a recession develops is uncomfortably large."

Although the consumer sentiment survey results were better than analysts’ expectations (Reuters analysts had predicted a reading of 75.0), the index in November stood at its lowest level since October 2005, a month after Hurricane Katrina.

"Rising prices for fuel and food had a devastating impact on household budgets, and falling home prices have diminished consumers' sense of financial security," commented Richard Curtin, director of the survey.