US economic squeeze ahead

Consumers in the US are expected to become more tight-fistet

A key index of leading US economic indicators suffered its largest fall in September since January 1996, raising concern about the strength of the US economy going forward.

The Conference Board's index, which is seen as a key forecasting measure of where the economy is headed in the next three to six months, fell 0.5 in September, down sharply from a 0.1% fall in August.

"The two-month decline in the index suggests that the already weak economy is likely to remain weak into next year," said Conference Board economist Ken Goldstein.

Making matters worse; the Conference Board said the fall would have been sharper if the US Federal Reserve had not cut interest rates in September.

"There was a big drop last month - surprise, surprise," said Bank One's chief economist Diane Swonk.

"Is the worst to come? Yes. We still have to pay the price of all the layoffs that just got dumped on the economy."

In January 1996, the index fell 0.8.

Shares, jobs and consumers

Share prices, unemployment claims and consumer confidence were the worst performers of the 10 components that make up the index.

In total, six of the components fell in September.

"Economic demand has slowed sharply. This is likely to be reflected in the numbers on orders and housing permits over the next few months," said Mr Goldstein.

"The service economy is also weakening with little reason to expect any quick turnaround."

The money supply and the interest rate components were positive in September, while the factory orders for consumer goods and vendor performance components were flat.