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Saturday, October 18, 2008 12:52 AM

Leading Indicators at 33 Year Low, Consumer Sentiment Drops Most on Record

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The Economic Cycle Research Institute ECRI reports Weekly Leading Index Growth at 33-yr Low.

A measure of future economic growth in the United States fell to its worst level in 6 years and its annualized growth rate had its biggest weekly decline in almost four decades to hit a fresh 33-year low, a search group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 117.0 in the week to Oct. 10, down from 120.6 in the previous period. It is at its lowest level since Oct. 25, 2002, when it stood at 117.0.

The index's annualized growth rate slid from a downwardly revised minus 14.8 percent to negative 17.1 percent, its lowest since Jan 31, 1975, when it was minus 17.9 percent, according to ECRI data.

"With its biggest weekly plunge in 37 years WLI growth has dived to a new 33-year low. This data objectively shows that financial market turmoil is rapidly worsening an already-grim recessionary outlook," said Lakshman Achuthan, managing director at ECRI.

ECRI data showed the index fell due to unfavorable moves in all components except for jobless claims.
Consumer Sentiment Falls Most on Record

Bloomberg is reporting U.S. October Consumer Sentiment Falls Most on Record
Confidence among U.S. consumers fell by the most on record in October, raising the risk that spending will slump as job losses mount and financial markets crash.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 57.5 from 70.3 in September, the biggest decline since monthly records began in 1978. The measure, which averaged 85.6 in 2007, was lower than forecast.

Americans felt less secure after the Standard & Poor's 500 Index fell every trading day but two so far this month, the credit crunch intensified and businesses cut more jobs. Further cutbacks in consumer spending, which accounts for more than two- thirds of the economy, will deepen a recession.

"Even gasoline-price decreases were overpowered by the massive destruction of wealth," said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. "Things are pretty awful in the economy and that should make itself felt through weaker consumer spending."

[See Winter Heating Costs: What Can Consumers Expect?]

A government report earlier today showed housing starts in the U.S. fell more than forecast in September as construction of single-family homes plunged to the lowest level in a quarter century. Work began on 817,000 houses last month, down 6.3 percent from August's level, the Commerce Department said in Washington. Construction of single-family homes dropped 12 percent to a 544,000 rate, the fewest since February 1982.

[See Single-Family Home Starts Fall to 26-Year Low].

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 56.7 from 67.2.

A gauge of current conditions, which reflects Americans' perceptions of their financial situations and whether it is a good time to buy big-ticket items like cars, slumped to 58.9, the lowest level ever, from 75.
Canada Consumer Confidence Drops to 26-Year Low

Things look equally grim, for Canada as Canadian Consumer Confidence Drops to 26-Year Low.
Canadian consumer confidence is at its lowest level since 1982 this month as more families expect their financial situation will deteriorate, according to a survey by the Conference Board of Canada.

The board's consumer confidence index fell 11.9 points from the month before to 73.9, the Ottawa-based group said today. The share of consumers who anticipated their finances worsening over the next six months rose to 17 percent, an increase of 4.3 percentage points from September. Also, 17 percent of respondents said they were worse off than six months ago, an increase of 2.5 percentage points.

The Bank of Canada unexpectedly cut its key rate to 2.5 percent from 3 percent on Oct. 8 as part of a coordinated bid by policy makers across the globe to ease the worst financial crisis since the Great Depression. BMO Capital Markets Chief Economist Sherry Cooper predicts the Canadian economy will sink into a recession caused by tumbling demand from the U.S.
German Investor Sentiment Slumps

In Germany, Investor Sentiment Slumped as Crisis Deepened
German investor confidence dropped for the first time in three months in October, to near a record low, as the global credit crisis threatened to tip Europe into a recession.

The ZEW Center for European Economic Research said its index of investor and analyst expectations slumped to minus 63 from minus 41.1 in September. The gauge reached an all-time low of minus 63.9 in July. Economists expected a decline to minus 51.1, the median of 35 forecasts in a Bloomberg News survey shows.

"The financial-market turmoil is the main cause for the drop in the index," Sandra Schmidt, an economist at ZEW, said in an interview on Bloomberg Television. "There's concern that it will spread to the real economy."

Germany's benchmark DAX share index dropped 22 percent last week, the most on record, as concern grew that bank failures and a credit-market freeze will drag the world into recession. German growth will slow to 0.2 percent in 2009 from 1.8 percent this year, the country's leading economic research institutes forecast today

French manufacturing confidence slumped in September to the lowest in 15 years as new orders dropped "markedly" and the economy probably fell into a recession, the Bank of France said today.

The German economy contracted in the second quarter and may not have recovered in the third as exports faltered and consumer spending waned. Business confidence dropped to the lowest level in more than three years last month.
Sentiment Indicators Summary

  • US leading indicators have biggest weekly plunge in 37 years.
  • US leading indicators are at 33-year low.
  • US Consumer sentiment drops most on record to 57.5 from 70.3, the biggest decline since monthly records began in 1978.
  • US big-ticket purchase sentiment slumped to 58.9, the lowest level ever, from 75.
  • Canada Consumer Confidence Drops to 26-Year Low.
  • German investor expectations slumped to minus 63 from minus 41.1 in September.
  • French manufacturing confidence slumped in September to the lowest in 15 years.

In other news, economists still debate whether or not the US is in recession. By the time they figure it out, the world will be in a recession. Well, actually, it already is.

Mike "Mish" Shedlock
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