Leading Indicators Slump 0.1% in September

The index of leading economic indicators, designed to predict the direction of the economy, slipped by 0.1% in September, the government said Tuesday.

The decline, the latest turn that the index has taken in its choppy path during the past several months, affirmed other signs of a slowing economy as Federal Reserve officials met Tuesday to set interest rate policy for the next few weeks.

The September setback followed a 0.5% rise in August, a 0.7% drop in July, a 1.5% jump in June and a 0.7% dip in May, the Commerce Department said.

“Leading indicators shouldn’t be looked at month to month; they should be viewed as a trend,” said economist David Wyss of Data Resources in Lexington, Mass.

“And right now the trend is telling us we’re going to have slower growth,” Wyss said.

In a separate report, the department said spending on construction of new buildings, roads and other projects rose by 0.6% in September to a seasonally adjusted annual rate of $403.4 billion after falling 0.2% in August.

Despite the latest increase, construction spending was still 0.5% below its level in September, 1987.

Interest Rates a Factor

Most of the September spending increase came in various government construction projects. Although there was a slight pickup in spending on new houses and apartment buildings, spending on non-residential building construction declined.

Economists said the trend toward higher interest rates would continue to dampen housing and other construction activity.

“Construction remains soft,” Wyss said. “It’s just that you did have a one-month rebound.”

The index of leading economic indicators has slowed sharply during the past year, rising by only 0.7%, compared to a 6.7% jump during the previous year.

Although the index is supposed to offer a glimpse at the economic trends that will happen three to six months from the time it is issued, many economists are skeptical of its reliability, except as a broad measure.

“Just because it went down a tenth of a percent this month, I don’t think that means we’re headed for a recession,” said economist Kathryn Kobe of Joel Popkin & Co. in Washington.

But when the index’s choppy movements during the past several months are averaged together, it shows little, if any, growth. “That probably does indicate that the economy is slowing,” Kobe said.

Fed Panel Meets

The September decline was the latest sign that the economy is losing steam under the impact of the interest rate increases engineered earlier in the year by the Federal Reserve in an effort to keep a lid on inflation.

Fed policy-makers were holding a regular meeting in Washington on Tuesday to plan the course of interest rates.

Other recent economic indicators also point to a slowdown. Orders for durable goods, or “big ticket” items, fell in September; consumer spending was flat overall and lower for expensive manufactured items, and gross national product slowed to a 2.2% growth rate in the July-September period from a 3% pace in the previous three months.

Four of the nine components that go into the index of leading indicators contributed to the decrease in September, led by a steep decline in business investment. The other three indicators that contributed to the drop were building permits, lower sensitive materials prices and money supply.

Five indicators were positive, led by average workweek, and followed by average weekly jobless claims, stock prices, vendor performance and orders for consumer goods.