Economic Indicators Signal Problems

The government’s main economic forecasting gauge dove in October to its lowest level in nearly two years, prompting analysts to warn of a potential recession next year unless the Federal Reserve lowers interest rates.

The Commerce Department, publishing its Index of Leading Economic Indicators for the last time, reported the barometer fell 0.5 percent in October. That’s the biggest drop since it skidded 0.6 percent in April. The gauge has not been lower since February 1994.

“The economy is running out of gas. It needs help,” said economist Maury Harris of PaineWebber Inc. “It could turn recessionary. This is a clear signal to the Federal Reserve they have to do something.”

A survey of business conditions by the Federal Reserve’s 12 regional banks reinforced a picture of slower growth and low inflation. The report said early Christmas sales were mixed and price pressures are minimal - despite some labor market tightness - as merchants offer sales to attract cautious customers.