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Mixed Signals on Economic Health

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Feb. 18, 2005 -- Bad news from New York was met with good news from Washington Thursday, sending mixed signals about the health of the economy.

Higher energy prices, a weak dollar, and cautious attitudes cut the Leading Economic Indicator down a fraction last month, indicating a possible slowdown in the coming months. Meanwhile, the Labor Department announced more upbeat results: 2,000 fewer jobless claims were filed last week, bringing the four-week average to 311,750, down 4,000 from the previous four-week period.

The Conference Board, an economic research group in New York, also said Thursday that its Leading Economic Indicator for January fell 0.3% to 115.6, after being revised up 0.3% in both November and December. For the last five months of 2004 and the first month of 2005, the index was down 0.3%.

Many factors caused the index to fall last month, but none more pressing than the attitudes of business managers. Ken Goldstein, a Conference Board economist, said, "The spike in energy prices and the lower dollar took some steam out of the economy. But the larger concern remains [the] cautious attitudes. Business concerns about the direction of cash flow could lead to cautious decisions about hiring and rebuilding inventories."

The drag on the economy may also be attributed in part to the price of oil, which rose roughly 10.8% in January, as well as the strength of the dollar, which, although it strengthened a bit against the Euro, still remained high in January, bouncing between $1.30 and $1.35.

The Conference Board's indicator, which is used to gauge the U.S. economy in the ensuing three to six months, is comprised of ten separate measurements. During January four of the measures advanced--average weekly manufacturing hours, real money supply, building permits and manufacturers new orders for non-defense capital goods.

The five indicators that declined were vendor performance, index of consumer expectations, stock prices, interest rate spread and manufacturers new orders for consumer goods and materials. Initial claims for unemployment insurance held steady for the month.

Last updated: Feb 19, 2005




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