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Signs of Some Slowing
Subject Economic Slowing
Topic Recession
Key Words Recession, Soft Landing, Productivity, Unemployment, Interest Rates
News Story

The Index of Leading Indicators is designed to predict future levels of economic activity. The Conference Board produces the index monthly. The index declined in August by 0.3 percent for the first time since March. Many factors accounted for August's decrease including a fall in factory hours worked and a decline in consumer expectations. The decline in the index illustrates that even before the terrorist attacks of September 11, the U.S. economy was slowing. The attacks may cause further slowing by reducing consumer, investor and business confidence.

The Index is composed of ten different economic series - eight previously reported economic statistics that economists believe lead the general business cycle and estimates of new orders for consumer goods and new orders for capital goods. The purpose of the Index is to gauge economic activity over the next three to six months and uncover peaks and troughs in the business cycle.

The decline in the Index was broad-based with seven of the ten component indicators decreasing. Average weekly manufacturing hours, index of consumer expectations, stock prices, vendor performance (slower deliveries), interest rate spread (10 year Treasury bonds less federal funds rate), average weekly initial claims for unemployment insurance and building permits all fell in August. A changes in the money supply was the only positive contributor to the Index, while new orders for nondefense capital goods and new orders for consumer goods both held steady for the month of August.

The decline in the Index will likely be a consideration when Federal Reserve policy makers meet on October 2 to consider lowering the federal funds rate. Economists believe that the Fed might cut the rate to 2.5 percent - a 39-year low.

(Updated October 1, 2001)

Questions
1. What are the four phases of the business cycle?
2. Why would policy makers be interested in the Index of Leading Indicators? How would changes in the Index assist their analysis of the economy?
3.. The Conference Board (http://www.conference-board.org) also publishes data for coincident and lagging indicators. What is a coincident indicator? A lagging indicator? Why is it important for analysts to have this information?
Source Bloomberg News, "Leading Index Fell in August For First Time Since March," The New York Times, September 25, 2001.

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