INDEX of leading indicators rises for fourth straight month, hinting at stronger economy

Monday, August 20th 2001, 12:00 am
By: News On 6

NEW YORK (AP) _ A key gauge of future U.S. economic activity crept higher for the fourth straight month in July, suggesting that some improvement may lie ahead for the economy.

The New York-based Conference board said Monday that its Index of Leading Economic Indicators rose 0.3 percent to 109.9, the same amount it rose in June.

Analysts had expected a 0.1 percent increase.

``The signal from the ... index, in terms of its depth and breadth, is that economic conditions, sluggish through the entire first half of the year, could begin to make way for a better economy this fall,'' Conference Board economist Kenneth Goldstein said.

The index is closely watched because it 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.

The U.S. economy has been besieged over the past year by anemic corporate earnings, plunging stock prices, massive layoffs and a downward spiral in the manufacturing sector.

In an effort to prevent the economy from slipping into a recession, the Federal Reserve has slashed interest rates six times so far this year. The Fed is widely expected to make an additional quarter percentage point cut when it meets Tuesday.

The central bank's aggressive rate-cutting campaign and an improvement in consumer expectations were among the factors that helped push the index higher last month, analysts said.

``That means the easing of monetary policy has saturated the economy with cash, which can be used as fuel for an economic rebound,'' said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis.

Sohn also said he anticipates that the recent federal income tax rate cut and refunds will provide another boost to the economy.

Consumer spending, which accounts for two-thirds of all economic activity, has managed to hold up well during the economic slowdown and is one of the forces that has prevented the economy from tipping into recession, economists say.

The markets were higher following the release of the report. The Dow Jones industrial average rose 41 points to 10,282, while the Nasdaq composite index rose 5 points to 1,871.

The Conference Board said five of the 10 components that make up the leading indicators index increased last month: money supply, average weekly initial claims for unemployment insurance, interest rate spread, average weekly manufacturing hours and index of consumer expectations.

The negative contributors to the index were stock prices, building permits and vendor performance. Other indicators held steady.

The group's index of coincident indicators, which measures current economic activity, edged up 0.1 percent in July to 116.3. The index of lagging indicators, which reflect changes that have already occurred, decreased 0.7 percent to 104.7.

The Conference Board is a nonprofit research and business group with more than 2,700 corporate and other members around the world.