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Mixed picture on economy
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September 1, 1999: 1:07 p.m. ET
Leading indicators up modestly; construction spending dips again
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NEW YORK (CNNfn) - The nation's leading economic indicators rose modestly in July while construction spending unexpectedly fell for a fourth straight month, two reports on Wednesday showed.
The leading economic indicators (LEI), a key gauge of future economic patterns, rose 0.3 percent in July, the Conference Board said. Powering the rise, which matched the June rate and economists' estimates, were gains in manufacturing and the labor market.
Meanwhile, the Commerce Department reported construction spending fell 0.5 percent in July to a seasonally-adjusted rate of $695.7 billion per year. Economists expected a gain of 0.3 percent. The June figure was revised to a decline of 0.1 percent after initially being reported as a 0.5 percent increase.
The bond market, sensing the Federal Reserve's policy goals won't be affected by the reports, didn't move much. The 30-year bond stayed unchanged in price, at a yield of 6.06 percent.
The construction report comes against the backdrop of a strong housing market, and led to some scratching of heads among top economists.
"The data is squarely at odds with the anecdotal evidence one gets from those in the industry," said David Orr, chief economist at First Union, in a note to reporters and clients.
The temperate construction spending report provided a sign inflation pressure is at bay. The bond market, which frets inflationary signals, didn't rally because housing starts have been strong and suggest construction spending will catch up, said one bond market economist.
"This largely explains why the credit market shrugged the number off," John Lonski, a bond market expert with Moody's Investor Service, said. "And the LEI up three-tenths (of a percentage point) shows the economy isn't in danger of slowing anytime soon."
Lonski said he expects another Federal Reserve rate hike by year-end, possibly after the meeting of its policy committee in late October. He said recent increases in interest rates haven't cooled off the economy as much as the Fed wants to see.
But another economist said the rate of growth in construction spending is what's important, and that is tailing off.
"I'd read it differently, "said Mickey Levy, chief economist at BankAmerica. "It's hard to question that housing activity is strong -- it is. The question is what's going to happen to the rate of growth, and I think it's going to flatten out."
The last time construction spending underwent as many back-to-back drops was when the economy was in a recession from August 1990 to January 1991.
Public construction spending rose 0.3 percent in July to $150.7 billion after a 0.7 percent decline in June, fueled by increased spending on housing and redevelopment, industrial buildings, highways and streets and sewers. Spending on public schools, water supply facilities and conservation fell.
-- from staff and wire reports
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