Bloomberg News

WASHINGTON - An index of leading U.S. economic indicators fell for the third straight time last month, a sign that higher interest rates may restrain growth in coming months, an industry report showed.

The Conference Board's index, which forecasts economic performance over the next three to six months, fell 0.1%, mostly reflecting a drop in factory orders. The decrease matched declines in the previous two months. Not since a 0.1% rise in March has the index shown an increase.

"With employment and income still rising, there will be growth, but not at the pace set earlier in the year," said Ken Goldstein, an economist at the Conference Board.

That should give comfort to central bankers, who are intent on keeping inflation in check. Federal Reserve policymakers have raised interest rates six times since June 1999 to slow the economy. Higher rates make it more expensive to take out auto loans, buy homes, and carry credit card debt.

The economy grew at a 5.3% annual rate in the second quarter, compared with 4.8% in the first.

Still, much of the increase was tied to rising inventories.

Consumer spending, which accounts for about two-thirds of economic output, grew in the second quarter at the slowest pace in three years.

The economy will probably expand at a 3.8% rate in the third quarter and 3.5% in the fourth, according to the median forecast of 33 economists surveyed last month.

The Conference Board uses previously reported economic statistics to compile its index of leading indicators. Five of the 10 components in the New York group's index declined last month, and five improved.

A decline in factory orders for consumer goods and business equipment, a drop in building permits, and improved delivery times, resulting from slower demand, pushed the index down. The spread between the interest rate on overnight loans between banks and the yield on the Treasury's 10-year note also hurt.

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