Leading Indicators Fall in October

N E W  Y O R K, Dec. 4, 2000 -- A key gauge of future economic activity fell 0.2percent in October, suggesting further slowing for the U.S. economyin the new year.

The Conference Board said its Composite Index of LeadingEconomic Indicators declined to 105.5 in October after registeringno 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 indicationwhere the overall U.S. economy is headed in the next three to sixmonths.

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

Board StatementKen Goldstein, the board’s chief economist, noted that since thestart of 2000, the leading indicators have declined in five monthsand been flat in four.

“To be sure, this series has been signaling and continues topoint toward a cooling of still-strong economic conditions,”Goldstein said in a statement.

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

The index of lagging indicators was unchanged in October at105.6, the board said.

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

U.S. economic growth slowed markedly in the July-Septemberquarter, with the nation’s gross domestic product expanding at anannual rate of 2.4 percent, down from 5.6 percent in the springquarter. GDP is a measure of the nation’s total output of goods andservices.

New-Home Sales Fall In further economic news, sales of new homes moderated in October aftersurging the month before, further evidence that economic growth isslowing to a more sustainable pace.

Americans purchased new single-family homes at a seasonallyadjusted annual rate of 928,000 in October, a 2.6 percent drop fromSeptember, the Commerce Department said today. Some analysts wereexpecting new-home sales to fall 4.9 percent.

Even with the decline, new-home prices reached record levels inOctober, a sign of the healthy housing market.

New-home sales soared by 11.9 percent in September, the biggestjump since September 1993, according to revised figures that werestronger than the government previously estimated. That pushedSeptember’s sales level to 953,000, the highest since November1998.

The Federal Reserve has boosted short-term interest rates sixtimes since June 1999 to slow the economy’s growth enough to keepinflation in check, but not so much that it triggers a recession.The Fed’s rate increases are designed to raise borrowing costs anddampen demand for big-ticket items such as homes and cars. Manycall this an attempt to reach a “soft landing” for thehigh-flying economy.

Fed Moves Effective

The Fed’s rate increases are working to slow economic growth,which clocked in at a 2.4 percent rate in the third quarter, andthat has reduced pressure on long-term interest rates.The average rate on a fixed-rate 30-year mortgage was 7.8percent in October, down slightly from the average 7.9 percentrates posted in September and in October 1999.

With mortgage rates holding steady below the 8 percent mark,home builders say they feel good about future sales. Last week, thegovernment reported that construction spending nationwide jumped0.9 percent in October, its second highest level on record.

With home sales at solid levels, home prices rose to all-timemonthly highs in October.

The median sales price, the midpoint where half the homes soldfor more and half for less, increased 2.9 percent to a record$174,900 in October.

The average price of a new home sold in October rose to a record$218,400, up 6.9 percent from September’s average of $204,300.

Sales fell in every region except the Northeast where they rose.

Sales declined by 8.9 percent in the West to a seasonallyadjusted annual rate of 256,000. They fell by 8.2 percent in theMidwest to a rate of 156,000 and they dropped by 2.8 percent in theSouth to 421,000. But in the Northeast they rose a whopping 37.7percent to a rate of 95,000.

Housing activity, an engine of the robust economy, is expectedto moderate this year but still be at robust levels.