Top Indicators Rise a Slight 0.1% in October : Analysts Say Gain May Signal Sluggish Growth
The Commerce Department on Thursday said the index of leading indicators, the government’s main gauge of future economic activity, edged up a slim 0.1% in October after falling the previous month, signaling some sluggishness in growth by the end of next year.
But analysts said the moderation, which would be welcomed by financial markets worried about inflation, isn’t evident yet. And they cautioned against drawing any firm conclusions until the index establishes a consistent pattern.
The index now has declined in five of the past 12 months. It dropped a revised 0.3% in September, a bit more sharply than the previous estimate of minus 0.1%. It also fell in July and May, but rose in June and August.
3% Growth for 9 Months
Michael Penzer, senior economist with Bank of America in San Francisco, said the index since early 1987 has been underestimating future growth. Nevertheless, he said the economy probably will slow by next spring.
Growth, as measured by the gross national product, averaged a 3% annual rate through the first nine months of this year, even though the Federal Reserve Board from late March to early August pushed up interest rates, hoping to curb GNP expansion to a non-inflationary 2% to 2.5%.
“The Fed has been tightening in order to slow the rate of growth down,” Penzer said. “Many times in the past they have overshot and pushed the country into a recession, but this time they’ll probably luck out.”
That would put the economy well into the middle of its seventh year of expansion, a peacetime record.
At the White House, spokesman Marlin Fitzwater said the latest economic figures “continue to suggest slower but continued economic growth in the months ahead. . . . It looks very good.”
However, at least for October, the latest month available, economic statistics portray stronger growth than desired by the Fed. Unemployment is at a 14-year low, use of factory capacity is at an 8 1/2-year high and personal income posted the biggest gain in a year.
4 of 9 Indicators Higher
In a separate report on Thursday, the Commerce Department said construction activity climbed 0.9% in October to a seasonally adjusted annual rate of $409.2 billion, the fourth consecutive monthly increase.
Economists and the markets are now awaiting the release today of the Labor Department’s employment survey for an indication about whether October’s vigor continued into November.
In October, four of nine available leading indicators were pointing to faster growth, while five were pointing to slower growth.
