Slow Growth Likely To Persist, Despite Promising Indicators
Jan. 13, 2005
By John S. McClenahen Although the Conference Board's Index of Leading Economic Indicators surged 0.5% in May -- only a 0.1% increase was anticipated -- don't look for the U.S. economy to suddenly move into high gear. One reason is that two other ...
ByJohn S. McClenahen Although the Conference Board's Index of Leading Economic Indicators surged 0.5% in May -- only a 0.1% increase was anticipated -- don't look for the U.S. economy to suddenly move into high gear. One reason is that two other closely watched indexes aren't showing the same headiness. The Conference Board's Index of Coincident Indicators remained flat in May, as U.S. industrial production fell sharply. And a third measure, the Index of Lagging Indicators, fell 0.2% last month. "Taken together, the three composite indexes and their components suggest that the period of slow growth in the U.S. economy will continue in the next few months," say economists at the Conference Board, a New York-based business research group. Five 50-basis-point cuts in the federal funds rate this year -- the influential rate is now at 4% -- apparently were major factors in May's surge in the leading indicators index. "Both money supply growth and the change in the yield spread contributed heavily to this increase," notes the Conference Board. That factor should make next week's meeting of the interest-rate-setting Federal Open Market Committee (FOMC) even more interesting to U.S. manufacturing executives, many of whom complain their businesses remain in recession. Their "economic problems have to do with several factors that are not part of the index," says Gordon Richards, an economist at the National Assn. of Manufacturers, Washington. "The market for many types of durable goods, for example, is becoming saturated; business has more than enough capital, while consumers have stocked up on everything from computers to cell phones. Meanwhile the [U.S.] dollar is seriously overvalued, which is cramping exports." Federal Reserve Chairman Alan Greenspan and his FOMC colleagues meet June 26 and 27 in Washington. A 25-basis-point cut in the federal funds rate is widely expected, while several private economists believe the FOMC will make its sixth 50-basis-point cut of the year.
