updated 8/18/2005 6:23:01 PM ET 2005-08-18T22:23:01

An important gauge of future economic activity rose a modest 0.1 percent in July, suggesting that higher oil prices and rising interest rates are tempering the nation’s economic growth prospects.

Major Market Indices

In Washington, meanwhile, the Labor Department said applications for unemployment benefits rose by 6,000 to 316,000 last week, but were still at a level that indicates a strong job market.

The figures released Thursday indicate that the U.S. economy is expanding and is likely to continue doing so. Still, fears are increasing that higher oil prices — on top of the Federal Reserve’s interest rate increases — could dampen all-important consumer spending as the year progresses.

“We have headwinds from high energy prices,” said Gary R. Thayer, chief economist at A.G. Edwards & Sons Inc. in St. Louis.

Although Thayer expects strong economic performance in the third quarter, he believes it could begin weakening in the final three months of the year “if those oil prices remain very high.”

The stock market, jittery over volatile oil prices, was mixed in Thursday trading.

The Dow Jones industrial average gained 4.22, or 0.04 percent, to 10,554.93.

Broader stock indicators were modestly lower. The Standard & Poor’s 500 index dropped 1.22, or 0.1 percent, to 1,219.02, and the Nasdaq composite index lost 9.07, or 0.42 percent, to 2,136.08.

The New York-based Conference Board’s Composite Index of Leading Economic Indicators is closely watched because it is designed to predict economic activity over the next three to six months.

It increased 0.1 percent to 138.3 in July following a revised increase of 1.2 percent to 138.1 in June. The index was unchanged in May.

The July results were in line with economists’ projections.

Conference Board economist Ken Goldstein said in a statement that the July figures “suggest moderate growth into the fall.”

He added that “the spike in energy prices is one factor in this outlook.” And, he said, both businesses and consumers appeared to be more cautious about spending and investment decisions.

Stuart G. Hoffman, chief economist for the PNC Financial Services Group in Pittsburgh, said higher energy prices already appeared to be “taking a bite out of the economy” by nipping back-to-school sales and reducing company profits.

But, he added, the leading indicators suggest “higher energy may put a dent in the expansion but not derail it.”

The Conference Board’s report said that six of the 10 indicators that make up the index contributed to July’s increase. They were a drop in claims for unemployment insurance, the interest rate spread, stock prices, building permits, consumer expectations and manufacturers’ orders for nondefense capital goods.

Negative contributors were vendor performance, the money supply and manufacturers’ new orders for consumer goods. Weekly manufacturing hours were unchanged.

The index of coincident indicators, designed to reflect current economic activity, advanced 0.1 percent in July to 120.8 after rising 0.3 percent in June to 120.7.

The index of lagging indicators, measuring past activity, climbed 0.3 percent for the third consecutive month to 120.0 in July from 119.7 the month before.

The 6,000 increase in jobless claims reported by the Labor Department was above the 2,000-person rise that economists had expected.

Employers created 207,000 new jobs in July, the best showing in three months, which helped to keep the unemployment rate at a low level of 5 percent. So far this year, a strong economy has generated an average of 191,000 new jobs per month, better than last year’s average of 183,000.

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