Recovery stumbles in October. PURCHASING magazine's Business Activity Index, which tracks industrial buyers' reports of new order trends at their companies, fell four points in October to a barely positive 51.5 (an index above 50 indicates that more buyers are seeing growth than are seeing declines; below 50 indicates the opposite). This is consistent both with the anecdotal evidence in PURCHASING's October Business Survey (see Grassroots report on page 20 of this issue) as well as with other economic indicators showing a stumble in the general pace of economic recovery. Few economists believe the declines are indicative of a return to recession, although many forecasters have started shaving their growth outlooks for 2003.

Output edges down, but high tech rallies. Total industrial production fell 0.1% in September, representing a second consecutive monthly decline, according to the Federal Reserve. Manufacturing industrial production fell 0.3% as auto output dropped 2.2%. High tech output, however, rose 1.1% as gains in computers and semiconductors offset another decline in production of communication equipment.

Forecasters hedge bets. Latest issue of Blue Chip Economic Indicators places the new consensus economic growth forecast at 3% for the coming year, down from 3.2% in September and a peak of 3.6% as recently as June/July. "Most of our panelists still cling to the belief that the U.S. will avoid a double-dip recession," Blue Chip reports. "However, the deterioration in the outlook since July reflects a growing perception that the pace of economic activity will remain below its trend rate longer than previously believed." According to the panel, economic growth will not return to its "trend" growth rate (around 3.5% annualized) until the second half of next year.

Leadtimes continue to signal recovery. Another big jump in PURCHASING magazine's October Leadtime Index (1992=100) suggests the September-October manufacturing slowdown is more a hiatus than a trend.

Waning credit demand poses new economic risk. While the employment situation has not deteriorated in the past several months, some economists are now suggesting the Fed may go ahead and cut interest rates again anyway. Reason: There's evidence that credit demand is slowing among both households and businesses. To reach the level of monetary liquidity it's aiming for, money market observers say the Fed may have little choice but to axe interest rates again.