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A slump, not a recession

Economists reading the latest index of economic indicators say November's data suggest a soft landing is at work.

Uneasy consumers may not find much to soothe their fears in the first part of the coming year as economic growth continues to slow, according to the latest report on the health of the economy.

The New York-based Conference Board said Wednesday that its Composite Index of Leading Economic Indicators declined 0.2 percent in November, suggesting economic growth will continue to slow through the first part of 2001.

The index is closely watched because it indicates where the overall U.S. economy is headed in the next three to six months.

"The indicators are pointing to significantly slower growth in the first half of 2001," said Ken Goldstein, the Conference Board's economist. "The economy continues to cool off and there are now some job vacancies with no one to fill them."

The index now stands at 105.3 after falling 0.3 percent in October and rising 0.1 percent in September, according to revised data. November's decrease was in line with analysts' forecasts.

The Conference Board report is the latest sign that the once-sizzling economy is cooling down, that consumers are spending less and that the stock market is turning bearish.

But observers say the downturn is too slight to signal a recession.

"This gentle decline is more in line with a soft landing for the economy," said Russ Sheldon, vice president and senior economist for Nesbitt Burns Securities of Chicago.

In the months leading up to past recessions, Sheldon said, the leading indicators index registered bigger declines _ sometimes up to a full percentage point _ which pointed to "outright weakness."

Another sign the economic slowdown is minor, Sheldon said, is that the leading indicators show most of the softening is in manufacturing and do not account for the technology industry's contributions to U.S. growth.

The index reached its high of 106.3 in January, but has fallen since. It is down 0.4 percent from a year ago, making it the index's first down year in three years. The index gained 1.5 percent to 2 percent annually the three previous years.

Five of the 10 indicators that comprise the leading indicators index helped push it lower in November, the biggest negative contributor being the category of average weekly initial unemployment insurance claims.

"That is the most telling sign that the economy is softening. Labor hoarding is not prevalent anymore as businesses are not as concerned about labor shortages as they used to be," said Sung Won Sohn, chief economist for Wells Fargo & Co. in Minneapolis. "We are seeing a lot more layoffs."

The decline in the index's stock market component also is significant proof that consumers and investors are less confident and have a tighter grip on their pocketbooks, Sohn said.

"We estimate in the year 2000 about 20 percent of the increase in retail sales came from the stock market's wealth effect. Now it is basically fading away to zero," Sohn said.

The other leading indicators that fell were: average work week production, manufacturers' new orders, vendor performance and stock prices.

The board said Wednesday that its Index of Coincident Indicators, which gauges current economic activity, rose 0.1 percent in November to 116.3 after decreasing 0.1 percent in October.

The Index of Lagging Indicators, which reflects changes that have already occurred, increased by 0.3 percent to 106.4 after rising 0.3 percent in October.

The indexes use a base of 100 established in 1996. The three indexes are used together as a barometer of overall economic trends.