A key US economic forecasting gauge fell in March as fears of a prolonged war in Iraq sent oil prices surging and confidence plunging, a private research firm said yesterday.
The Conference Board said the index of leading economic indicators fell 0.2 of a percentage point last month after a 0.5 percentage point drop in February. Wall Street economists polled by Reuters had forecast a 0.1 percentage point decline in March.
"The good news is that it's not getting worse," said Mr Ken Goldstein, the board's chief economist. "The bad news is that it's not going to get better this spring and maybe even this summer."
The sluggish data do not, however, point to recession.
"You've got a reflection of the kind of sluggish, uneven pattern of growth continuing," said Mr Tim O'Neill, chief economist at Bank of Montreal/Harris Bank, "but there's no sign of impending danger or any sign that the economy will slip into recession".
While some welcomed the early end of the war in Iraq as the first step toward economic recovery, Mr Goldstein does not think the end of fighting will necessarily boost growth. Imbalances in the world's largest economy are caused by domestic factors, he said.
"The issue of consumer confidence is of far greater importance than what is or what isn't going on in Iraq," he said, adding that consumer spending, which accounts for two-thirds of the economy, has been hampered by shaky labour markets.
The employment situation may remain weak until the end of the summer because the economy is still "going too slowly" for businesses to boost investment and induce a pickup in the labor markets, he said.
"Plans to expand business investment were put on hold," Mr Goldstein said. "The combination of the slowing in consumption growth and the delayed start to more investment has effectively softened the soft spot that the economy has been in." Until businesses feel confident enough to invest more and expand their work forces to boost productivity, economic growth should remain in the lower-than-desired 2.0 to 2.5 per cent range, economists say.
One of the main impediments to an economic revival is the prospect of a profit squeeze induced by the drop in productivity in the last three months of last year and possibly early this year, Mr Goldstein said.
Mr O'Neill, however, noted that since the war in Iraq had impacted the stock market, improvements could begin to be seen in the US economy now that the fighting is almost over.
"Business spending was affected by the uncertainty about the war," Mr O'Neill said. "With that behind us, it should provide a better environment for companies to spend." - (Reuters)
