Plus: Leading Economic Indicators Climb and Weekly Jobless Claims Drop.

WTO Scales Back World Trade Forecast
The World Trade Organization (WTO) cut its 2011 trade growth forecast to 5.8 percent last week, down from 6.5 percent as predicted in April, citing increasing economic uncertainty.

“Trade has grown more slowly than expected in recent months,” the WTO says. “Since the original forecast for 2011 was issued on April 22, developed countries in particular have been buffeted by strong headwinds, including the lingering effects of the earthquake and tsunami in Japan, the prolonged budget impasse and credit downgrade in the U.S. and the ongoing euro-area sovereign-debt crisis.”

Poor output and employment data have also hit consumer confidence hard and contributed to turmoil in the financial markets.

Developing countries are expected to fare much better than industrialized powers. Trade volumes in developed economies are now projected to grow by 3.7 percent for 2011, down from 4.5 percent forecast in April. Shipments from developing economies are estimated to reach 8.5 percent, down from the earlier forecast of 9.5 percent.

“The latest forecast follows a major recovery in 2010, when the volume of world trade jumped by 14.1 percent, bouncing back from a big drop of 12.1 percent in 2009 after growth of a low 2.3 percent in 2008,” Reuters notes.

U.S. Leading Economic Indicators Improve
The Conference Board’s Leading Economic Index (LEI) for the United States increased 0.3 percent to 116.2 in August, following a 0.6 percent gain in July and a 0.3 percent increase in June. However, most of the improvement was due to fiscal factors rather than stronger confidence.

“The August increase in the U.S. LEI was driven by components measuring financial and monetary conditions which offset substantially weaker components measuring expectations,” Ataman Ozyildirim, an economist at The Conference Board, explains. “The growth trend in the LEI has moderated and positive and negative contributors to the index have been roughly balanced. The leading indicators point to rising risks and volatility, and increasing concerns about the health of the expansion.”

The LEI weighs 10 key indicators to track business cycle peaks and troughs. Last month, four of the 10 indicators included in the report made positive contributions: the money supply, the interest rate spread, building permits and supplier deliveries. According to Bloomberg News, the surge in the money supply is “a sign investors may be losing confidence in the global economy and reducing their holdings of riskier assets.”

Meanwhile, The Conference Board’s Coincident Economic Index edged up 0.1 percent to 103.3 in August, and its Lagging Economic Index rose 0.3 percent to 110.3 for the month.

“There is growing risk that sustained weak confidence could put downward pressure on demand and business activity, causing the economy to potentially dip into recession,” Ken Goldstein, an economist at The Conference Board, says. “While the chance of that happening remains below 50-50, the odds have certainly increased in recent months.”

Jobless Claims Fall
New initial jobless claims decreased in the latest week reported, following a sharp increase in the period including Labor Day weekend. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending September 17 fell by 9,000 to 423,000, down from the previous week’s total of 432,000. The four-week moving average, however, rose by 500 to 421,000.

The decline in jobless claims slightly exceeded expectations, as economists polled by MarketWatch had forecast claims to drop by 8,000, seasonally adjusted. The number of claims has fluctuated widely in recent weeks, rising to a two-month high in the previous reporting period, while the four-week moving average continued to rise for the fifth consecutive week.

“While initial claims for state unemployment benefits dipped last week, the trend has moved higher,” Reuters reports. “Excluding one week in early August, first-time claims have held above 400,000 since early April, showing a still troubling pace of layoffs. A Labor Department official said there was no discernible effect from recent storms.”

Initial jobless claims typically reflect weekly layoffs, usually dropping as new jobs are created. The unemployment rate among those eligible for benefits, which is linked to the jobless claims rate, remained at 3 percent for the week ending September 10. Forty-three states and territories posted drops in jobless claims that week, while 10 states reported an increase.