Leading Economic Indicators Slide in February

It was the sharpest drop in more than four years.
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A key economic gauge designed to forecast future U.S. economic activity posted its sharpest drop in more than four years in February, indicating that higher interest rates could be starting to penetrate the momentous U.S. economic expansion.

The

Conference Board's

index of

leading economic indicators

-- a sort of crystal ball that economists use to anticipate the course of the economy -- dropped in February for the first time since September 1999. The slide was the largest in magnitude since January 1996.

Conference Board economist Ken Goldstein said in a statement that indicators still point to a growing economy over the next three to six months, but that activity is likely to moderate from the late-1999 clip that caused the nation's

gross domestic product

to rise a massive 7.3% annual rate during the fourth quarter.

The index dropped to 0.3% in February to 106 after rising a revised 0.2% in January to 106.3, the research group said Tuesday. The index is calculated based on a 1996 level of 100. The Conference Board began computing the index in 1995, when the private research group took over the responsibility from the

Commerce Department

.

The biggest drags seen on the economy over the next six months come from declining levels of capital goods orders, building permits and stock prices -- areas among the most sensitive to interest rate increases.

However, Goldstein said that at this point, the drags do not seem strong enough to break the economy out of its record 109-month expansion, the longest in history.

"The data now suggest some sectors are beginning to respond to the

Fed

tightening, but certainly not enough to prevent the economy from reaching new records for longevity," Goldstein said.

The Federal Reserve has been raising interest rates in an effort to slow the demand side of the economy by making it harder for businesses and consumers to borrow and spend. The Fed fears that imbalances in supply and demand could lead to inflation.

Over the past 10 months, the Fed has raised short-term interest rates, which act as a basis for most other interest rates, by a total of 1.25 percentage points.