WASHINGTON (Reuter) - Weaker manufacturing activity and a slower pace of commodity price rises helped pull the government's main economic forecasting gauge down in July, the Commerce Department said Friday.
The Index of Leading Indicators, which is supposed to forecast economic trends six to nine months ahead, dropped 0.2 percent in July. That followed a 0.2 percent rise in June -- the only month this year in which the index has increased.
Wall Street economists had forecast the index would be flat in July, rather than drop, but its lackluster performance was consistent with other signs that expansion in the second half may be fairly sluggish.
The leading index measures a basket of economic indicators, from unemployment benefit claims to building permits. Five of its 11 components were weaker in July and five strengthened while one -- new orders for consumer goods -- was unchanged from June.
On Thursday, Commerce said consumers had raised their spending in July by only 0.2 percent despite a hearty 0.7 percent increase in incomes. More went into savings, which analysts said reflected a cautious mood as consumers seek to cut their debt loads.
As well, Commerce reported Thursday that new orders received by factories had fallen 1.3 percent in July, a fifth decline in the past six months, while shipments of finished products weakened from June.
That showed up in the July Leading Index, as the declining indicators were led by slower commodity price rises and by fewer plant and equipment oprders than in June.
Other declining indicators were a shorter average workweek, smaller order backlogs and faster vendor deliveries because companies were not as busy.
The positive indicators in July were higher stock prices, more applications for building permits and rising consumer expectations. As well, the money supply was higher than in June and there were fewer new applications for unemployment pay.
Separately, the Commerce Department reports construction spending rose at the strongest rate in more than 1 1/2 years in July, with increases across the board for both private and government-funded projects.
Total spending increased 2.0 percent to a seasonally adjusted annual rate of $529.8 billion -- the largest monthly gain since 2.1 percent rise in November 1993 -- following a 0.9 percent rise in June.
Spending on all types of projects was strong.
For example, after falling for six months in a row, spending on residential construction projects picked up 1.8 percent to a $232.6 billion a year rate in July.
Privately financed construction projects of all types increased 2.4 percent to a seasonally adjusted $386.6 billion -- the strongest level since $387.1 billion last November.