FEARS that the US economy might be entering a fresh phase of accelerating growth were dampened yesterday with the publication of two reports suggesting the expansion remains moderate.
The index of leading economic indicators, published by the Conference Board, a private sector research group, nudged upwards in October. The index, a good predictor of economic conditions in six to nine months' time, rose by 0.1 percentage point to 103.6. The report measures a range of indicators that point to the future pace of economic activity. Sharp increases in equity prices and a faster rate of new orders for consumer goods were the principal factors behind the increase in October, but there was also steady growth in commodity prices and order backlogs, while unemployment benefit claims fell.
The only weak spots were a shorter factory working week fewer orders for new plant and equipment and reduced applications for building permits.
Meanwhile, the Commerce Department reported a big drop in new home sales in October. Sales fell to a seasonally-adjusted annual rate of 714,000, a decline of 8.7 per cent from the previous month, the sharpest fall in seven months. That followed a downward-revised 4.5 per cent decline in September. All regions of the country reported falls.
But both reports suggest the economy continues to enjoy a moderate rate of expansion in the final few months of the year, with little risk of inflation. The fall in new home sales represents a cooling-off from rapid growth in demand earlier in the year while the index of leading indicators points to a continuing gentle rate of growth.
Gross domestic product grew at an annual rate of 4.7 per cent in the second quarter, setting off alarms that growth might prove unsustainable. But the rate slowed to 2 per cent in the July to September period, more in line with the economy's long-run potential.
Fears persist that rapid growth in consumer spending could put upward pressure on prices and much attention in the next month will focus on the performance of retail sales.
