22 October 2002, 08:51  U.S. Economy: Leading Indicators Fell in September

/www.bloomberg.com/ By Siobhan Hughes
Washington, Oct. 21 (Bloomberg) -- The U.S. index of leading economic indicators fell in September for the fourth month in a row, the first time that has happened since the start of the 1990- 91 recession. The drop suggests the recovery may stall through the first quarter of next year.
The Conference Board's index dropped 0.2 percent after falling a revised 0.1 percent in August. Over the past six months, the index has declined at an annual rate of 0.5 percent. It would take a 3.5 percent rate of decline over six months to signal a recession, the New York group said.
``A little bit of patience is probably appropriate,'' said Gary Stern, president of the Federal Reserve Bank of Minneapolis. His comments on the economy came in a speech to a business group in Bloomington, Minnesota. He said the economy may accelerate in the second half of next year.
Microsoft Corp. said it may have lower sales growth, and Zale Corp. is forecasting sales will decline this quarter, citing the slowing economy. Falling stock prices, rising jobless claims and a drop in consumer optimism contributed to the decline in the Conference Board's index. The New York group uses 10 gauges of economic activity to indicate the economy's direction over the next three to six months.
``As a general matter, our economy is doing okay,'' Treasury Secretary Paul O'Neill said earlier today. ``We continue to look at possible things that might be done to help it along.''
Stocks Rise
Stocks rose, driving benchmark indexes to their highest level in more than five weeks. The Standard & Poor's Index of 500 stocks rose 15.33 points, or 1.7 percent, to close at 899.72, and the Dow Jones Industrial Average gained 215.84 points, or 2.6 percent, to close at 8538.24.
Economists had expected a 0.2 percent decline in the leading indicators index after a previously reported 0.2 percent drop in August, based on the median of 40 estimates in a Bloomberg News survey.
``Except for the financial markets, there is little evidence of a developing economic decline,'' said Ken Goldstein, an economist who compiles the report for the Conference Board. ``A stalling-out of growth is a more reasonable prospect than the economy falling back into recession.''
The U.S. economy will grow at a 2.2 annual rate this quarter, down from a projected 3.6 percent rate in the 2002 third quarter, according to the latest Blue Chip Economic Indicators survey. Wal- Mart Stores Inc., Kohl's Corp. and Target Corp. had lower-than- expected sales in September, which has reduced economists' expectations for consumer spending during the November-December holiday shopping season.
Zale, Microsoft
Zale, the largest North American jewelry retailer, said its loss for the quarter that ends Oct. 31 will be larger than forecast. Microsoft Chief Executive Steve Ballmer said the company's 26 percent increase in sales during the quarter that ended on Sept. 30 may not be repeated in coming months.
``We're not trying to say that we think the sales results of our first quarter will be sustainable, it is kind of a one-time anomaly,'' Ballmer told an Australian television program.
Five of the 10 indicators the New York group uses to calculate the index declined, and four rose. The group bases its measurement on seven previously reported economic statistics and estimates for three others.
Besides a drop in stock prices, an increase in jobless claims and lower consumer expectations, a decline in factory orders for business equipment also subtracted from growth. A narrower spread between the yield on the 10-year Treasury note and the overnight bank lending rate helped drag down the index.
`Slow Going'
``It's just got to bring into the question the strength of any economic recovery,'' said John Silvia, chief economist at Wachovia Securities in Charlotte. ``It signals that this is slow going.''
The decline was limited by an increase in homebuilding permits, higher orders for consumer goods, a rise in the money supply and slower vendor delivery times, which imply increased demand. There was no change in the length of the factory workweek.
The Conference Board's index of coincident indicators, a measure of current economic activity, held steady in September after rising 0.1 percent in August. The index of lagging indicators fell 0.6 percent last month, compared with a 0.1 percent drop the prior month.
The Standard & Poor's 500 Index fell 7 percent last month, completing its worst quarter since the 1987 stock market crash, as Wal-Mart cut its sales growth forecast. Even with a recent increase, the S&P index is still below its 916.07 at the start of September.
Jobless Claims
Initial jobless claims averaged 425,000 in September, the highest monthly average since April, amid a wave of firings at financial services and telecommunications companies. Charles Schwab Corp., the biggest discount brokerage, last month announced plans to cut about 1,800 jobs, and Ciena Corp. cut 450 jobs, or 17 percent of its workforce.
While jobless applications have fallen this month, the number is still above 400,000, which economists say is the dividing line between a strengthening and weakening labor market.

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