Key Economic Gauge Slips Back in October

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

The Conference Board said Monday that its composite index of leading economic indicators declined to 105.5 in October after registering no change in September and dropping 0.1% in August. October’s drop was slightly more than the 0.1% analysts had expected.

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% in October--the first decline since a 0.1% drop in September 1999, the New York-based business group said.

Also, the Commerce Department reported Monday that sales of new homes moderated in October after surging the month before, providing further evidence of slowing economic growth. Americans purchased new single-family homes at a seasonally adjusted annual rate of 928,000 units in October, a 2.6% drop from September, the department said. But the decline was much smaller than the 4.9% analysts forecast.

But even with the decline in sales, the average price of a new home rose to a record $218,400 in October from September’s $204,300, while the median home price rose to $174,900 from $169,900.

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.

“This series has been signaling and continues to point toward a cooling of still-strong economic conditions,” Goldstein said. “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%, down from 5.6% in the spring quarter.

The slowing came after the Federal Reserve raised interest rates six times between June 1999 and May 2000 in an effort to keep the economy from overheating and sparking inflation.

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

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

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

David Orr, chief economist at First Union Corp. in Charlotte, N.C., agrees. He noted that while there has been a slowdown in manufacturing and a rise in jobless claims, “the other side of the coin has been strength in housing and construction.”

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 non-defense capital goods, consumer expectations, initial claims for unemployment benefits and the spread in interest rates.

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Index of Leading Economic Indicators

Seasonally adjusted index; 1996=100.

October: 105.5

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Source: Conference Board