Leading index shows economy is cooling

NEW YORK A key measure of future economic activity indicates theU.S. economy is cooling off, but it remains unclear whether theslowdown will be enough to head off another interest-rate increase bythe Federal Reserve.

The Index of Leading Economic Indicators held steady Wednesday at106 for the month of June, forecasting a break from rapid economicgrowth for the rest of 2000, according to the Conference Board, aprivate industry group based in New York. The results met economists'expectations.

The index, which attempts to forecast economic trends for the nextthree to six months, stood at 100 in 1996, its base year. It dropped0.1 percent in May after holding steady in April.

In a separate report Wednesday, the Commerce Department said salesof new homes fell 3.7 percent in June to the slowest sales pace inmore than two years, hurt by rising mortgage rates.

Stocks were generally higher following both reports' release, withthe Dow Jones industrial average up 80.58 to close at 10,687.53.

The numbers released Wednesday could be potential factors when theFederal Reserve considers raising interest rates when it meets Aug.22. Concerns about too-rapid economic expansion and fears ofinflation have prompted the Fed to raise interest rates six timessince last summer.

The central bank left rates unchanged at its most recent meetingin June, but left the door open to another rate increase this month.

Most observers agree the economy is slowing, but differ over howthe Fed will interpret the recent data.

"The question is how much is the economy slowing and the bigquestion is, `Is it slowing enough so that the Fed doesn't have toraise interest rates again?' " said Ken Goldstein, an economist forthe Conference Board. "My vote is no hike in August. . . . But that'sjust a guess."

Paul Ferley, assistant chief economist at Harris Bank/Bank ofMontreal in Toronto, disagreed.

"Our view is that the Fed will have to . . . raise rates inAugust, and probably in November and December," said Ferley. Thenumbers suggest that if more tightening is not done, the economy willbounce back, erasing all of the effects of the cooldown, heexplained.

The economy is still exhibiting some strength, according to theConference Board. The board's Index of Coincident Indicators, whichgauges current economic activity, rose 0.2 percent in June, the sameas the previous month, on gains in employment, income and industrialproduction.

The Index of Lagging Indicators, which reflects changes that havealready occurred, also increased in June, jumping 0.8 percent,primarily because of outstanding commercial and industrial loans,prime rates and changes in labor costs. In May, the index was up 0.2percent.