New York, Oct 20--An index designed to foreshadow movements in overall economic growth slipped in September, suggesting that the U.S. economic recovery has slowed from its red-hot third-quarter pace, but isn't about to stall, as reported in the Wall Street Journal.
The Conference Board, a New York research group, said its index of leading indicators fell 0.2% in September, its first decline in four months. "The economy is improving ... although the road ahead will likely remain bumpy," Conference Board economist Ken Goldstein said in a news release.
Economists estimate the economy grew at a blistering 6.1% annual rate in the third quarter ended Sept. 30, according to a survey by Macroeconomic Advisers LLC, a St. Louis forecasting firm. That would be the fastest quarterly pace in almost four years.
Macroeconomic Advisers itself believes the economy grew 6.9%.
However, most of the expansion in economic activity took place in July and August, when the effect of tax cuts and the mortgage-refinancing boom were strongest. There are signs consumer spending cooled in September as mortgage rates rose and the tax cuts were spent.
The Conference Board said six of the 10 indicators in its index declined, led by money supply, and the relationship between long-term and short-term interest rates. Positive contributors were the manufacturing work week and stock prices.
Economists see growth decelerating to a still-respectable 3.8% in the fourth quarter, according to Macroeconomic Advisers.
That optimistic outlook has been reinforced by signs that job growth may have resumed in the previous month, which should raise consumer confidence and give households more money to spend.
Furthermore, stock prices remain buoyant, which should underpin household wealth, and business inventories remain low, so that any increase in sales should flow directly to production.
The improvement in economic performance has prompted markets to worry the Federal Reserve may start to raise interest rates sooner than expected.
Those concerns were fueled by Federal Reserve Bank of San Francisco President Robert Parry last week, when he said the Fed's commitment to accommodative monetary policy doesn't mean the federal-funds rate won't rise from its 45-year low of 1%.
However, markets may have overreacted. Mr. Parry's statement appears to simply to restate what most Fed officials have always felt: monetary policy should be judged to be easy or tight based on the level of the fed-funds rate, not whether it is going up or down.
Even if the funds rate is rising, Fed officials would consider monetary policy to be accommodative as long as the rate was below the level associated with a growing economy with full employment.
That said, Fed officials are unlikely to push for an increase until the rate of inflation stops falling and a noticeable dent is made in unused business capacity and high unemployment.
