Flooring News and Information

New York, NY, Oct. 23—The Conference Board’s Index of Leading Economic Indicators fell 0.5% to 109.2 in September, meeting analysts' expectations. The decline was the largest in almost six years and follows a revised 0.1 drop in August.

“It just confirms what we know has been the fallout from the terrorist attacks,” said Gary Thayer, chief economist of A.G. Edwards & Sons in St. Louis.

The decrease in the September index is the largest since January 1996, and mirrors a significant slowdown in the manufacturing and service sectors. The dropoff in economic demand will likely be reflected in a future decline in the numbers of manufacturers' new orders and housing permits, said board economist Ken Goldstein.

The index indicates where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year. Analysts expect the economic slump—which started well before the September 11 terrorist attacks— to last until next year.

“Is the worst yet to come? Yes,” said Diane Swonk, chief economist at Bank One in Chicago. “We still have to pay the price of all the layoffs that just got dumped on the economy.”

But Dan Laufenberg, chief economist at American Express Financial Advisers in Minneapolis, said he thought the economy could start to mend as early as the first quarter of next year.

“I think we'll be surprised by how strong the economy is likely to be,” Laufenberg said.

Many economists already have said they believe that a recession is unavoidable with the new uncertainties raised by the attacks. The Federal Reserve bank has cut a key interest rates nine times this year in an effort to shore up the economy, actions lauded by the Conference Board.

“Without the aggressive expansionary policy adopted by the Federal Reserve ... this drop would have been much deeper,” it said in a statement.

While the Conference Board predicted a drop in housing permits, Thayer suggested that low interest rates could continue to prop up the housing market, one of the economy's bright spots prior to the attacks. Consumer confidence and low interest rates play a significant role in the housing sector's health. While consumer confidence has waned since the attacks, interest rates remain favorable.

“There's a good chance we could see fewer housing permits,” Thayer said. “But low interest rates could support the housing market a bit.”

The board said six of the ten components of the leading index contributed to its decline in September: stock prices, average weekly initial claims for unemployment insurance, index of consumer expectations, average weekly manufacturing hours, building permits for new housing and manufacturers' new orders for nondefense capital goods.

Money supply and interest rate spread were the only components that rose, while vendor performance and manufacturers' new orders for consumer goods and materials held steady for the month.

The coincident index, which measures current economic activity, fell 0.1% from a revised August number to 116.6 in September. The index of lagging indicators, which reflects changes that have already occurred, slipped 0.2% in September to 104.