A gauge of future economic activity dropped in June, the second decline in past 3 months, suggesting the US economic recovery will weaken. The Conference Board, a private research group, said Thursday its index of leading economic indicators fell 0.2 percent last month. Economists polled by Thomson Reuters had expected a drop of 0.3 percent. The index was revised higher to a 0.5 percent increase in May from the initial report of a 0.4 percent gain. The April report was revised to a 0.1 percent drop from a prior estimate of no change. The leading indicators gauge had risen almost every month since April 2009 as the economy rebounded from recession. It was pulled higher by the increasing amount of money in the economy, the rebound in manufacturing and slow improvements in the job market. But weakness in the housing sector, faltering consumer spending and high unemployment have raised fears about a big slowdown in growth. “The indicators point to slower growth through the fall,” said Conference Board economist Ken Goldstein. He said the manufacturing rebound will likely slow and there is “little indication” of a pickup in the service sector, which employs about 80 percent of the US work force. Five of the 10 indicators increased, while 4 declined and an estimate of manufacturers' new orders for capital goods was flat. Employment data - fewer hours worked in factories and more people filing for jobless aid - weighed down the index, as did dropping stock prices. The biggest positive contributions were the money supply, which increased, and the difference between 10-year interest rates and the overnight interest rate that the Federal Reserve has kept at a record low near zero. A wide gap between the two can mean investors expect economic activity to pick up. Still, that gap has narrowed recently as investors searching for safety bought up 10-year Treasurys, weighing on bond yields. Meanwhile, Federal Reserve Chairman Ben Bernanke said the fragile US economy still needs government stimulus spending to strengthen the recovery and help reduce unemployment. Bernanke tells lawmakers that Congress should come up with a credible plan to reduce the government's record-high budget deficits in the long run. But he says they shouldn't move to slash spending or boost taxes, or undertake some combination of both right now. He says: “I believe we should maintain our stimulus in the short term.”
