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Leading indicators fall
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September 24, 2001: 11:29 a.m. ET
Research firm's index of future U.S. economic activity dropped in August
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NEW YORK (CNNfn) - A closely watched index of future economic activity in the United States fell for the first time in five months in August, a report said Monday, a sign of weakness in the world's largest economy in the weeks before the Sept. 11 terrorist attacks.
The Conference Board, a New York-based business research group, said its Index of Leading Indicators fell 0.3 percent in August to 109.6 after rising 0.3 percent in July. Economists surveyed by Briefing.com expected the index to fall 0.1 percent.
Though the Conference Board report reflects conditions before the attacks, in which planes piloted by terrorists destroyed the World Trade Center, damaged the Pentagon, and killed thousands of people, it does highlight how weak the U.S. economy was before the attacks.
"There was cautious optimism a month ago that manufacturing declines might have been bottoming out," said Conference Board economist Ken Goldstein. "Now, in the wake of the attacks, economic demand seems likely to slow."
Six days after the attacks, the Federal Reserve cut its target for short-term interest rates for the eighth time this year to try to boost the economy and prevent a recession. But many analysts believe such a downturn is now likely, if it has not already begun.
"Economic activity flattened out at the end of the summer, suggesting that the nascent recovery may have already been aborted," said Steven Wood, economist with FinancialOxygen.
A recession is commonly defined as two straight quarters in which economic output contracts.
The report had little effect on U.S. stocks, which continued to rally after a sell-off last week. Treasury bond prices fell.
Click here for more on the Fed and rates
The Dow Jones industrial average suffered its worst percentage loss in 61 years last week, partly due to uncertainty about just how badly the economy will perform as consumers, businesses and the government respond to the threat of terrorism.
President Bush, Federal Reserve Chairman Alan Greenspan and other government leaders have said since Sept. 11 that any downturn will be short and that the economy is poised for a recovery in 2002. The Fed's interest-rate cuts, combined with fiscal stimuli from Bush and Congress should be enough, many economists say, to fuel a healthy rebound.
"The fundamentals for growth are very strong," Bush said Monday in a Rose Garden conference. "You bet there are problems with our economy short-run, but not long-run."
Bush and Congress have already approved a $40-billion disaster-relief package and a $15 billion bailout plan for U.S. airlines, which have borne the brunt of consumer fears and an unprecedented shutdown of air travel in the days following the attacks.
Similar actions are expected in the coming months, although Greenspan and other economists have urged Congress to be cautious before dedicating more money until they get a better idea of how the economy will respond.
Bush remarked on the economy Monday after discussing his administration's plan to freeze the assets of known terrorists and to enlist other governments to do the same.
"We intend to and we will disrupt terrorist networks," Bush said. "We will starve the terrorists of funding."
Click here for CNNfn.com's economic calendar
The Conference Board's lagging index, which measures past trends in the economy, fell 0.3 percent in August after a 0.7-percent drop in July, reflecting the marked sluggishness of economic activity of recent months.
The coincident index, which gauges current economic trends, remained unchanged last month, after a 0.2-percent increase the previous month.
Seven of the 10 components that make up the leading indicators index fell in August, led by the average manufacturing work week, consumer expectations, stock prices and slower deliveries.
Only money supply was positive in August, while capital goods orders and consumer goods orders remained unchanged, the Board said.
The Conference Board's consumer confidence report, due Tuesday, will be much more closely watched than Monday's report of economic indicators, as it will include data gathered after the Sept. 11 attacks.
On Friday, the Conference Board said a survey of 750 households found that 47 percent of consumers thought the terror attacks would trigger a recession, though 90 percent of consumers didn't plan to change their spending habits.
Consumer spending fuels two-thirds of U.S. economic activity and kept a recession at bay during a year-long slowdown in business spending and manufacturing. Hundreds of thousands of job cuts in the past year, however, had undercut consumer confidence even before the terrorist attacks. 
-- from staff and wire reports
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