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The Honolulu Advertiser
Posted on: Friday, May 18, 2001

Fed's rate cuts take hold

Associated Press

NEW YORK — A key gauge of future economic activity rose in April, following two straight monthly declines, as the effects of the Federal Reserve's aggressive rate-cutting campaign began seeping into the economy.

The Conference Board said its Index of Leading Economic Indicators rose 0.1 percent to 108.7 in April after slipping a revised 0.2 percent in March and 0.2 percent in February.

The improvement, which matched economists' forecasts, reflects the positive effect of the Federal Reserve's aggressive interest rate cutting campaign since the start of the year, said Ken Goldstein, economist for the New York-based Conference Board.

"If you decrease the cost of capital then you make it easier for people to borrow to expand or to fix things up," Goldstein said.

The index is closely watched because it indicates where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year.

Economists said the April increase, though small, is a sign that the economy is beginning to stabilize after months of decline.

"This is a glimmer of hope that the economy is beginning to stabilize," said Sung Won Sohn, chief economist at Wells Fargo & Co. "Perhaps we can see the light of economic recovery at the end of the tunnel."

But they also were cautious. Mark Vitner, of First Union Corp., said, "It really doesn't make me optimistic about the near-term outlook."

"I still think we're in for a few more months of pain," he said.

The April increase was only the second in the last seven months. The cumulative change in the index over the past six months was a 1.3 percent decline.

Three consecutive declines in the index traditionally have been considered a sign that the economy is headed into recession.