Commerce Department reported yesterday that its Index of Leading Economic Indicators plunged 1.2 percent in October on top of three previous monthly declines, including July, when the index was first reported to have been flat.
Three consecutive declines in the index have been viewed as a fairly reliable -- although not infallible -- sign that a recession is approaching.
President Bush, speaking at a news conference, confirmed the bad news and attributed at least part of the economic weakness to the Iraqi invasion of Kuwait in August and the subsequent disruption of world oil supplies. "Our economy, as I said the other day, is at best in a serious slowdown," Bush said. "And if uncertainty remains in the energy markets, the slowdown will get worse."
The gauge is designed to forecast economic conditions six months to nine months in advance. However, recent surveys show that most economists believe the economy already is in a downturn.
"It looks like the leading indicators are catching up with the economy," said economist Robert G. Dederick of the Northern Trust Co. in Chicago.
Many analysts had expected the October decline. But the department surprised some observers by revising the July index, which originally was said to be unchanged, to a 0.1 percent decline.
The gauge dropped 0.8 percent in September and 1.2 percent in August, the steepest decline since a 1.4 percent plunge in the month following the October 1987 stock market crash.
Eight of the 11 forward-looking components were negative in October -- consumer confidence fell for the third straight month, weekly unemployment claims rose for the fifth month, the average workweek shortened and building permits declined for the fourth month.
At the same time, the money supply shrunk for the sixth month, stock prices were off for the fourth month, the price of raw materials dropped, meaning less demand, and business deliveries sped up indicating fewer orders.
The only positive contributors were increases in orders for consumer goods and for new plants and equipment and in unfilled orders.