Economic gauge drops for third straight month

WASHINGTON — An important gauge of future economic activity declined sharply in September as fallout from the Gulf Coast hurricanes continued to batter the United States. The toll on jobs lost from the storms rose to nearly a half-million.

The 0.7 percent drop in the Index of Leading Economic Indicators, reported Thursday by the Conference Board, was bigger than expected. The gauge now has fallen three straight months for the first time since the recession year of 2001.

One rule of thumb says three monthly declines in a row could signal an impending recession. But analysts said this time the index was merely flashing signs of slower growth.

"We are headed for a Katrina-induced soft patch, but I would not interpret this as the early warning of a recession," said Nariman Behravesh, chief economist at Global Insight, a private consulting firm.

Many analysts believe that growth during the last half of this year will slow by as much as one percentage point because of the hurricanes. The storm caused heavy job losses along the Gulf Coast as well as widespread shutdowns of refineries and oil platforms. Oil prices surged briefly above $70 per barrel, while pump prices at gasoline stations climbed above $3 per gallon.

The Labor Department reported that an additional 40,000 people filed for unemployment benefits last week because of hurricanes Katrina and Rita.

That brought the total for storm-related layoffs to 478,000.

The rise in jobless claims along with a plunge in consumer confidence related to the spike in energy prices were major factors in pushing the leading index down by 0.7 percent in September after declines of 0.1 percent in both August and July.

Concerns over the prospect of a slowing economy and weak corporate profits sent the Dow Jones industrial average skidding on Thursday. The Dow fell by 133.03 points to close at 10,281.10 after gaining 128 points on Wednesday.

"The leading indicators are telling us that we have got a slowdown because of the disruption from the hurricanes, but it is not as dire as the September drop would suggest," said David Wyss, chief economist at Standard & Poor's in New York.