updated 10/18/2007 11:03:57 AM ET 2007-10-18T15:03:57

A gauge of future economic activity edged higher in September, suggesting the economy may trudge forward at a modest pace despite a worsening housing slump.

Major Market Indices

The Conference Board said Thursday its index of leading economic indicators rose 0.3 percent in September to 137.9, slightly below analysts’ consensus forecast for a 0.4 percent rise. The modest growth follows a sharp 0.8 percent drop in August. The index has been erratic this year — rising one month and falling the next — but overall, growth has been flat.

“You have an economy sputtering, in which some parts are trying to regain momentum, while other parts like the housing market are losing steam,” said Ken Goldstein, labor economist at the Conference Board. “The question is, how long will it remain that choppy?”

The index is designed to predict economic activity in the coming three months.

Seven of the 10 data points tracked by the Conference Board increased last month, the strongest of which were vendor performance, the job market and stock prices. The housing market continued to lag.

The September reading only partially reflects the Federal Reserve’s decision to lower key interest rates at mid-month, Goldstein said. The Fed cut its benchmark federal funds rate Sept. 18 by a half percentage point to 4.75 percent, a move that helped loosen credit conditions and ease turmoil in the financial markets.

Leading indicators chart

Peter Cardillo, chief market economist at brokerage Avalon Partners Inc., expects slower growth, as weakness in the housing market weighs on the economy but other, stronger areas provide some expansion.

“While third-quarter growth is likely to come close to 3.9 percent, fourth-quarter growth could come in under 2 percent,” he said. However, he added that “none of the indicators point to recession.”

Investors are now awaiting the Fed’s Oct. 30-31 meeting, when the central bank will decide its next move on interest rates. Expectations surrounding that decision have been in flux; this week’s dismal housing market data have helped shift market sentiment toward another cut.

The Commerce Department said Wednesday that homebuilding dropped to its lowest level in 14 years last month. That “probably once again reverses in favor of another rate cut as an insurance policy on the part of the Fed to keep the economy growing, even at weak levels,” Cardillo said.

The Conference Board’s coincident index, which measures where the economy is at present, rose 0.2 percent in September. Its lagging index rose 0.5 percent.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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