Economic slowdown may be near, index suggests

 

The Boston Globe --Jul. 23

Jul. 23--After nearly a year of strong growth, the US economy may slow in the coming months, according to economic data released yesterday.

The Conference Board, a nonprofit research group in New York, reported yesterday its index of leading indicators, a gauge of future economic activity, fell in June for the first time 14 months. The index, which tries to project how the economy will perform in the next three to six months, dipped 0.2 percent, following a 0.4 percent advance in May, and 0.1 percent increase in April.

The decline, the first since March 2003, is the latest in a series of reports showing the economy slowing in June. Job growth slowed dramatically in June, while retail sales and factory orders fell. Stocks have slid, too, amidst concerns that profits will slow along with the economy.

Yesterday, the Dow Jones industrial average dipped below 10,000 before rebounding to close at 10,050.33, up 4.20 points from Wednesday. The technology-heavy Nasdaq Composite index rose 14.69 points to close at 1,889.06.

Despite the weaker than expected data for June, many economists, including Federal Reserve chairman Alan Greenspan, say that the recovery remains on track. Earlier this week, Greenspan told Congress that the slowdown in June appears temporary, caused in part by soaring gasoline prices that cut into consumer spending. Economists expect gas prices to moderate in coming months.

Greenspan, in his congressional testimony, also reiterated the Fed's intention to raise interest rates gradually, another indication that policy makers expect the economy to expand in coming months. The Fed raises rates when the economy is growing as a way to prevent inflation, and cuts them to spur growth when the economy shows signs of weakening.

Ken Goldstein, an economist at the Conference Board, said it's not unusual for the leading indicators index to fluctuate from month to month.

"It's not unusual to get a bump in the road," said Goldstein, "still get continued strong growth in the next few quarters."

The apparent slowing of the economy in June has not been all bad, either. Bond investors, who see the slower growth as allowing the Fed to keep rates lower for longer, have reacted by pushing yields lower on long-term bonds. As a result, mortgage rates, which are tied to long-term bonds, have fallen recently.

Yesterday, Freddie Mac, the government-created mortgage company, reported that the average rate for a 30-year fixed mortgage fell below 6 percent in the last week.

James O'Sullivan, an economist at UBS AG in Stamford, Conn., agreed that the slowdown in June appears temporary. The trend in the leading indicators over the past few months are "signaling solid growth," he said.

-----

To see more of The Boston Globe, or to subscribe to the newspaper, go to http://www.boston.com/globe .

(c) 2004, The Boston Globe. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. FRE, UBS,