US economy set to limp into 2002
AFP, Washington
The US economy is set to limp into 2002 after being hobbled by the terror attacks, the Conference Board said Monday, reporting a slump in its index of leading indicators.
But Wall Street appeared to have missed the bad news.
Investors shook off fears of anthrax and concerns about the US military campaign in Afghanistan to send the blue-chip Dow Jones industrials index surging 1.88 per cent.
Gordon Charlop, a floor trader with Walter J. Dowd, said the market nearly lost its nerve after investors learned of the deaths of two postal workers who may have come into contact with anthrax.
"It seemed like some of the news from Washington was going to hurt the marketplace," he said.
"But then the bull got some of its swagger back."
Earlier, the business research group Conference Board said its composite index of leading economic indicators -- a basket of 10 items such as housing permits that point to future activity -- fell 0.5 per cent in September.
It was the steepest drop since January 1996, and it followed a 0.1-per cent decline in August.
The deterioration had set in even before September 11, when 19 terrorists hijacked four passenger planes, destroyed the World Trade Center, damaged the Pentagon and killed more than 5,000 people, it said in a statement.
"The terrorist strike against the United States is disrupting the economy," said Merrill Lynch economist Stan Shipley.
"Two consecutive monthly declines for the index of leading indicators suggest that the economy will remain weak into next year. Third quarter GDP (gross domestic product) appears to have edged down at a 0.3 per cent rate."
Most economists are tipping a decline in GDP in the third and fourth quarters of this year -- meeting the technical definition of a recession. Government spending and tax-cut packages, combined with lower interest rates, are expected to fuel a rebound next year.
"The overall reading from these numbers indicates that manufacturing and services are experiencing a significant slowdown. Economic demand has slowed sharply," Conference Board economist Ken Goldstein said.
The services sector was also deteriorating, "with little reason to expect any quick turnaround," Goldstein said.
The US Federal Reserve -- which has cut the federal funds target rate twice by half a per centage point to a 39-year low of 2.5 per cent since the attacks -- had forestalled a worse performance, the Conference Board said.
"Without the aggressive expansionary policy being adopted by the Federal Reserve, which helped improve money supply and interest rate spread, this drop (in the leading index) would have been much deeper," it said.
Slowing demand would likely depress the sluggish economy further in the months ahead, hurting orders and building permits, which are components of the leading index, the Conference Board said.
The main factors dragging down the leading index were stock prices followed by new jobless benefit claims, consumer expectations, weekly manufacturing hours, building permits and new orders for non-defence capital goods.
Only money supply and interest rate spread improved.