Indicators Point to Slowdown in October

The government’s chief economic forecasting gauge signaled a slowdown in October, but other evidence suggested that lower interest rates will keep the economy from toppling into a recession.

The 0.4% drop in the Commerce Department’s index of leading economic indicators announced Friday fits in with the consensus among analysts that the final quarter of this year and the first three months of 1990 will see weak growth at best.

“The indicators are telling us what they’ve been telling us for some time, and that is that the economy is continuing to expand, but at a slow rate,” said economist David Berson of the Federal National Mortgage Assn.

However, he and other analysts said a number of factors mitigated the unfavorable report. The decline followed two monthly gains; most of the weakness was concentrated in only two of the index’s 11 forward-looking business statistics.

And elements of the index and a separate report on October construction spending suggest that the Federal Reserve Board’s cuts in interest rates since June are beginning to stimulate the economy.

Construction activity rose 1% in October, bolstered by the first gain in single-family construction in nine months, the Commerce Department said.

Four of the 11 indicators were positive. Building permits increased 2.8% and the nation’s money supply, reflecting lower interest rates, expanded modestly. Other positive signs were a slight increase in prices of sensitive materials, indicating increased demand, and an upturn in business capital investment.

Meanwhile, the National Assn. of Purchasing Management, which tracks the economy through a monthly survey of its members, said Friday that the manufacturing economy weakened in November for the seventh straight month and at a faster pace than in September and October.

October’s overall drop in the leading indicators, which was expected by most economists, followed gains of 0.3% in September and 0.6% in August. Both gains were revised in the report to reflect a slightly better increase than earlier reported.

For the first 10 months of 1989, the index has fallen five times, risen four times and remained unchanged in one month.

The various changes left the index at 144.6% of its 1982 base of 100. That represents a 0.4% decline at an annual rate for the year so far, compared to a 3.8% gain in the first 10 months of 1988.