Slowdown Confirmed, Indicates LEI Summary

Staff -- graphic arts online, 3/1/2001

The Conference Board's latest summary of leading economic indicators (the LEI report) suggests that economic growth in the U.S. will be much weaker this year than during the past several years.

But, of course, an economic slowdown was precisely what the Fed was attempting to engineer with its series of six interest rate hikes over the span of less than a year between mid-1999 and the spring of last year. The unanswerable question now is whether the U.S. economy will enjoy a soft landing, or whether the Fed went too far and has precipitated the hard landing of at least a mild economic recession.

The composite LEI declined by a sharp 0.6% between November and December 2000, following declines of 0.4% during both of the previous two months. Seven of the 10 indicators that make up the LEI declined in December. The most significant negative contributors were the measure of average weekly hours worked in the manufacturing sector, the index of consumer expectations, interest rates, and stock prices. The three positive contributors that prevented economic conditions from deteriorating even further were the continued solid growth in the money supply, new orders received by manufacturers for consumer goods, and slower delivery times (presumably signaling some backlog of orders already in the pipeline).

The LEI is a composite measure of 10 widely varied economic indicators that, when taken together and properly weighted, have shown to have been reliable indicators of changes in overall economic activity for the period six to nine months ahead. The recent trend in the index doesn't by itself signal recession, but, like the Conference Board's survey of business confidence, it does suggest that the economy is increasingly vulnerable.