Gauges Point to Slower Economy

Factories were less busy as summer waned last month, a closely watched industry survey released Tuesday confirms, and a key forecasting gauge predicts slower but steady economic growth through year-end.

The two reports--from the National Assn. of Purchasing Management and the Conference Board--sketch out a picture of a slowing national economy. Apparently it was signs of economic weakening that persuaded Federal Reserve Board policymakers not to boost interest rates last week.

Most analysts had forecast that the expansion would ease in the third quarter, which ended Monday, to an annual rate of about 2.5% from the second quarter’s hot 4.7% pace--a pace that had fired up inflation fears.

The purchasing managers group said its index of manufacturing activity fell to 51.7% last month from 52.6% in August, indicating that September’s growth rate was slower than August’s.

A reading above 50% indicates growth in manufacturing; one below that level signals contraction.

The reading reassured markets that the economy has lost some momentum, after seeing vigorous growth in the spring.

The Conference Board’s index of leading indicators for August posted a seventh straight monthly gain, up a modest 0.2% after seeing an identical rise for July.

The purchasing management index, which measures not only orders and backlogs but also price changes, is well-regarded by private forecasters and by the central bank as a broad-based indicator of inflation trends. The leading indicators index is supposed to predict trends six to nine months ahead. It points to a steady but more muted rate of growth.

The [association] report shows the manufacturing sector is just muddling through,” said Elliott Platt, research director at Donaldson Lufkin Jenrette in New York.

Ralph Kauffman, chairman of the association’s business survey committee, similarly foresees neither a dramatic slowing nor a pickup on the horizon.

I think continued steady growth at approximately the level we’ve seen recently is probably indicated for the very near term,” Kauffman said.

The New York-based Conference Board’s leading indicators index suggests the same: rising output this fall and winter, but at a more subdued pace than in the spring. The index uses several measures, from unemployment benefit claims to building permits.

The signal of rising activity in August were led by increased commodity prices, higher stock prices and fewer new claims for unemployement. In addition, vendor delivery times slowed.

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Leading Indicators

Seasonally adjusted index: 1987=100

August: 103.3

Source: Conference Board

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Purchasing

The purchasing managers index tracks overall business activity of more than 300 industrial companies. A reading above 50% indicates growth in manufacturing.

September: 51.7%

Source: National Assn. of Purchasing Mangers