Key Index Falls, but No Sign of Recession
The U.S. economy continued to falter last month, but steered clear of tipping into a full-fledged recession, the Conference Board reported Thursday.
The industry research group said its index of leading economic indicators fell 0.2% in February to 108.8 after rising a revised 0.5% in January. The February decline matched Wall Street expectations.
Athough the index declined in four of the last five months, it has not slid enough to signal a recession, the group said. The index is closely watched because it indicates where the overall U.S. economy is headed in the next three to six months.
“The bottom line is the overall index is nowhere near recession territory,” said Diane Swonk, chief economist at Bank One in Chicago.
Nor does it suggest a quick recovery.
“The leading economic index is basically telling us what we already know,” said Bruce Steinberg, chief economist at Merrill Lynch. “Despite the declines in the index, the economy is growing, although very slowly.”
Steinberg predicted that the economy wouldn’t start picking up until the end of the year.
The Conference Board originally said that the index had dropped 0.3% in February, but later issued a statement revising the decline.
Ken Goldstein, the group’s economist, said the number was revised to include end-of-month consumer sentiment data from the University of Michigan, instead of preliminary Michigan data that was included in the Conference Board’s first release Thursday.
Steinberg said the Federal Reserve would intervene to stave off a recession, as it did earlier this week.
Tuesday, the Fed slashed interest rates again, the third half-point reduction since January. The decrease disappointed investors, who believed that a more aggressive 0.75-point reduction was needed to boost the slowing economy and corporate profits.
In late January, Federal Reserve policymakers decided unanimously to cut interest rates for the second time that month because the economy was slowing much faster than they had anticipated, minutes of their meeting showed.
Members of the Federal Open Market Committee felt “the eventual degree and duration of the softening in economic conditions were difficult to predict,” according to the minutes released Thursday.
The Conference Board said five of the 10 indicators that make up the leading index increased in February: money supply, interest rate spread, vendor performance and manufacturers’ new orders for both nondefense capital goods and materials as well as consumer goods.
The negative contributors to the index were average weekly initial claims for unemployment insurance, index of consumer expectations, average weekly manufacturing hours, stock prices and building permits.
In a separate report, the Labor Department said new claims for state unemployment insurance fell a scant 1,000 in the week of March 17 to 379,000, a level that exceeded economists’ forecasts for 372,000.
However, the closely watched four-week moving average rose to 377,000 in the March 17 week from 365,500, reaching its highest since 388,500 in the April 13, 1996, week.
Economists consider the four-week average a more reliable indicator of labor market trends because it smooths out fluctuations in the weekly data.
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