A key gauge of U.S. economic activity plunged 0.6 percent in December, the largest drop in five years and a signal of continued weakness in the U.S. economy.
The New York-based Conference Board, a private research group, said its index of leading economic indicators fell to 108.3 last month after drops of 0.4 percent in October and November. The index is designed to forecast economic trends in the next three to six months.
“The public is now hearing loud and clear that economic growth has stalled and that the risks of serious trouble are rising. No doubt, such negative news, in turn, affects consumer confidence, which then can affect consumer spending,” said David Orr, chief economist at First Union in Charlotte.
Three consecutive declines in the index traditionally have been seen by analysts as a signal that the U.S. economy is headed into recession.
But Conference Board economist Ken Goldstein said in a statement accompanying the report that “the cumulative decline is … still below the threshold of what would be considered a recessionary signal,” noting that the leading index has fallen 3.2 percent over the past six months, while 3.5 percent is the threshold that typically signals a recession.
The decline in the leading indicators–which operate from a 1996 base of 100–was the largest since a 0.7 percent drop in January 1996, the Conference Board said. December’s drop, however, was exacerbated by a technical adjustment. Without that change, December leading indicators would have fallen by 0.3 percent, Goldstein said.
David Resler, chief economist at Nomura Securities in New York, said the report was “further confirmation” of earlier data on economic weakness.
He said he expected the Federal Reserve to lower interest rates further when it meets at the end of January. The Fed lowered interest rates a half-point earlier this month on fears economic activity was slowing precipitously.
The Conference Board said that 7 of 10 components of the leading index declined last month: weekly manufacturing hours, consumer expectations, the spread in interest rates, stock prices, initial claims for unemployment insurance, manufacturers orders for non-defense capital goods, and material and building permits.
