updated 4/19/2007 12:56:13 PM ET 2007-04-19T16:56:13

The U.S. economy should expand only slightly in coming months as it continues to lose steam, a gauge of future growth showed Thursday.

Major Market Indices

But a resilient labor market indicates the economy remains generally healthy, economists said.

The Conference Board said its index of leading economic indicators climbed a tepid 0.1 percent to 137.4 in March, as expected. The index is designed to forecast economic activity over the next three to six months.

The latest reading reverses two consecutive months of declines. Despite the increase, the index is still below its most recent high of 138.6 in January 2006 and the year-ago level of 138.5 in March 2006.

The reading tracks 10 economic indicators. Six of those readings were positive in March: initial unemployment claims, weekly manufacturing hours, real money supply, vendor performance, building permits, and manufacturers’ new orders.

The negative contributors were stock prices, consumer expectations, interest rate spread and manufacturers’ new orders.

In other economic data, the Labor Department said weekly applications for unemployment benefits slipped by 4,000 to 339,000 after hitting a two-month high a week earlier.

The decline in jobless claims was significantly smaller than the expected drop of around 20,000. But economists said the data signaled the labor market remains generally sound even with economic growth slowing over the past year.

Economists have said that as long as the labor market remains steady and there are jobs available, consumers may continue to feel optimistic. Consumer spending has been one of the pillars of the economy’s growth, though there are concerns that higher gas prices and the slumping housing market may undermine spending.

“What we’re seeing is slowing growth and that the economy is losing steam,” said Ken Goldstein, labor economist for The Conference Board.

But he said the drop of 0.3 percent in the index of leading indicators over the last six months is not big enough to indicate the economy is in any real danger.

The mixed economic news in recent months suggest the economy “could go one way or the other,” Goldstein said.

“The winds are not all blowing in one direction. Who knows? Maybe after Labor Day, we might be talking about an economy picking up steam,” he said.

Negative contributors to the most recent index of leading indicators, such consumer expectations, should rebound next month in response to recent gains in the stock market, said Gary Bigg, an economist with Bank of America.

“It’s kind of an encouraging report in the sense that the positive contributors were from the business sector,” Bigg said.

Still, he said the reading indicated fairly sluggish growth for the remainder of the year.

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