More economic squeeze called likely in 2nd half

Associated Press

July 22, 2008

NEW YORK - Factories laying off workers, stocks tumbling and shoppers ditching their credit cards forced the economy to contract in June, a trend likely to continue in the second half of 2008, a private business group said yesterday.

The New York-based Conference Board's forecast of future economic activity fell 0.1 percent last month, in line with forecasts by Wall Street economists surveyed by Thomson Financial/IFR.

The group also revised May's number downward to a 0.2 percent decrease, from a 0.1 percent increase.

The financial crisis, high gas and food prices, and the weak dollar "are all combining to produce unrelenting downward pressure on economic activity," said Ken Goldstein, labor economist with the Conference Board. "This is also why it wouldn't take much to push the economy so it's even weaker in the second half of 2008."

The index has slipped 0.9 percent for the six months ending in June, but the rate of decline has improved since the first quarter. The index is designed to forecast where the economy is heading in the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits.

Downturns in the auto and housing industries have been devastating for the manufacturers that produce everything from spark plugs to vinyl siding. And more job cuts are almost certain: General Motors Corp. said last week that it would slash production of trucks and sport utility vehicles by 300,000 by the end of next year.

Manufacturers that make anything related to cars and trucks have been laying off workers, cutting their hours, selling the companies or shutting their doors, said Ralph Hardt, president of Feintool Inc., a Cincinnati component maker.

"The number of auction fliers that come across my desk is back where it was in 2000, 2001, the last recession we had," he said.

A change in New York's building code saved June's index from a larger drop, said Ian Shepherdson, chief economist of High Frequency Economics in Valhalla, N.Y. Building permits for apartments and condos leaped in New York last month as builders rushed to file permits ahead of a new city construction code. The increase was so large that it boosted the leading index by 0.3 percent, Shepherdson said, a figure that will reverse in July.