Report confirms economic slowdown

Eileen Alt Powell

Monday, Dec. 4, 2000 | 10:59 a.m.

NEW YORK -- A key gauge of future economic activity fell 0.2 percent in October, suggesting further slowing for the U.S. economy in the new year.

The Conference Board said today that its Composite Index of Leading Economic Indicators declined to 105.5 in October after registering no change in September and dropping 0.1 percent in August. October's fall was slightly more than the 0.1 percent analysts had anticipated.

The index is watched closely because it gives an indication where the overall U.S. economy is headed in the next three to six months.

A related index, which measures current or coincident economic activity, fell 0.1 percent in October -- the first decline in 13 months, the New York-based business group said.

Also today, the Commerce Department reported that sales of new homes moderated in October after surging the month before, providing further evidence that economic growth is slowing. Americans purchased new single-family homes at a seasonally adjusted annual rate of 928,000 in October, a 2.6 percent drop from September, the department said. Some analysts were expecting new-home sales to fall 4.9 percent.

The reports prompted a retreat to blue chips on Wall Street as investors sent technology stocks lower. The Dow Jones industrial average was up 81.14 at 10,454.68 at midmorning, after struggling throughout morning dealings to stay in positive territory. Broader indicators were mixed.

Ken Goldstein, the Conference Board's chief economist, noted that since the start of 2000, the leading indicators have declined in five months and been flat in four.

"To be sure, this series has been signaling and continues to point toward a cooling of still-strong economic conditions," Goldstein said in a statement accompanying the report. "Interest rates and growth restraints continue to dictate the pace and timing of how much slower the economy will be this winter."

U.S. economic growth slowed markedly in the July-September quarter, with the nation's gross domestic product expanding at an annual rate of 2.4 percent, down from 5.6 percent in the spring quarter. GDP is a measure of the nation's total output of goods and services.

The slowing came after the Federal Reserve raised interest rates six times between June 1999 and May 2000 in an effort to try to keep the economy from overheating and sparking inflation. Fed policy makers next meet on Dec. 19, and most economists expect that they are likely to express less concern about inflation but hold rates steady.

The Fed has aimed at a "soft landing" for the economy, slowing growth but not sending the economy into a recession.

Bryan Jordan, an economic analyst at Banc One Investment Advisors in Columbus, Ohio, believes the leading indicators suggest that a soft landing is on track.

"There's no doubt the economy is cooling off, and these numbers are more evidence of that," he said. "We don't buy into that hard landing story. ... There's still a lot of inherent strength in the economy."

Jordan said the housing sales figures -- as well as data showing that new-home prices reached record levels in October -- were further evidence of a slowing, not crashing, economy.

The latest Conference Board report said that six of the 10 indicators that make up the leading index declined in October: manufacturers' new orders for consumer goods, stock prices, manufacturers' new orders for nondefense capital goods, consumer expectations, initial claims for unemployment insurance and the spread in interest rates.

The index of lagging indicators was unchanged in October at 105.6, the board said.

All the indexes use a base of 100 established in 1996.