WASHINGTON -- The U.S. economy is faltering again after a brief statistical rebound, putting Federal Reserve policymakers under fresh pressure to agree to another round of interest rate cuts.
Financial analysts said they expect Fed officials to move soon to slash the discount rate to 4.5% from 5% and reduce the federal funds rate to 4.75% from 5%, given the stream of statistical reports last week showing an ailing economy.
The Federal Open Market Committee, the Fed's policymaking arm, is scheduled to meet tomorrow. Last week, Fed officials opted to let the federal funds rate slide to 5% from 5.25%, but the effect on financial markets was muted.
More relief seems on the way now.
"There's no indication the cuts in interest rates have taken hold so far," said Robert Dederick, chief economist for Northern Trust Co. in Chicago. "We're like Scarlett O'Hara, hoping something will turn up."
The FOMC meeting comes as economists are still picking through the rubble of last Friday's report from the Labor Department showing the civilian jobless rate in October edged up to 6.8% from 6.7%. The number of nonfarm payrolls was essentially unchanged as increases in service industry employment were offset by losses in construction, manufacturing, and retail trade.
A separate report from the Commerce Department said the index of leading economic indicators for September edged down 0.1% in September -- the first decline in eight months. The August index was flat.
Separately, the National Association of Purchasing Management reported last week that its national index fell in October, ending a string of increases dating back to February. New orders and production continued to rise, but at a slower pace, the purchasing managers reported, while prices advanced for the first time since December 1990.
Earlier last week, Commerce reported that sales of new single-family homes in September plunged 12.9%, to 446,000, the lowest level since, January.
"We've seen a whole raft of numbers for September and October that suggest the recovery is in trouble," said David Jones, chief economist for Aubrey G. Lanston & Co. Mr. Jones said he is looking for the Fed to cut the discount rate and the federal funds rate sometime between mid-November and mid-December.
The FOMC meeting comes at a sensitive political time, as Democrats in Congress are stepping up their attacks on the Bush administration for failing to pay enough attention to the economy -- a view most people share, according to the two latest polls from ABC News/Washington Post and The Wall Street Journal/NBC News.
A White House official admitted that the administration is also frustrated because it is unsure of Republican support in Congress in any battle with the Democrats over legislation to stimulate the economy. As a result, President Bush is uncertain what kind of package he might be asked to sign.
At the same time, the large drop in consumer confidence reported last week by the Conference Board and the public unease about the economy are being reinforced by bad economic reports.
"My cheerful optimism is deserting me," Mr. Dederick said. "All the evidence we have says that the expansion stopped. It hasn't been reversed, but it's been stopped."
As recently as July, Federal Reserve Board Chairman Alan Greenspan testified to Congress that he believed a mild recovery was unfolding, a belief also articulated by the Bush administration. But Mr. Greenspan admitted last week in a speech to the University of Rhode Island that the economy shows "little spark" and that the credit crunch is continuing to grind on, despite the Fed's many moves to lower short-term rates.
Simply put, Fed policymakers and many private economists are starting to admit that they misjudged the situation. Technically, U.S. gross national product rose at an annual rate of 2.4% in the third quarter, breaking three quarters of economic contraction.
But analysts now say it is clear the housing and manufacturing sectors -- which were pulling the economy up during the summer -- are losing their steam. At the same time, the consumer sector continues to languish. Retail sales have done little since July, and car sales have been sluggish despite the start of the new model year.
"It's clear that last summer most of the FOMC members thought the economy was recovering," said James Annable, chief economist for First National Bank of Chicago. "That's what most of the models showed, but this is a much different economy than people thought, and we're seeing a Federal Reserve scramble to catch up."
Friday's report from the Labor Department said nonfarm jobs slipped by 1,000. While the figures for nonfarm jobs were revised up to show increases of 48,000 in September and 112,000 in August, in general that report was a continuation of the flat trend in labor markets that has prevailed since the middle of the summer.
"The October labor market indicators show continued weakness in the demand for workers," said Bureau of labor Statistics Commissioner Janet Norwood in written testimony to the congressional Joint Economic committee.
Slow growth in the labor force has kept the jobless rate from rising further, she added.
Labor Secretary Lynn Martin, in a statement, said the fact that the unemployment rate was up only slightly, to 6.8%, along with Thursday's report showing a drop in initial jobless claims "is a sign that the economy is pointed in the right direction."
But private economists said the outlook is for very sluggish, if any, growth.
"There's no source of strength in the economy, and the Fed and everybody else is scaling down their forecasts for the fourth quarter," Mr. Annable said.
The only major source of strength in the Labor report showed up as a gain of 101,000 in service jobs, including a rise of 42,000 jobs in the health sector.
Other key labor markets were down. Manufacturing employment fell 32,000 for the second monthly drop in a row. All of the decrease came in the machinery, electronic equipment, transportation, and other durable goods sectors.
Retail jobs fell 47,000 and construction jobs declined 29,000.
The decline in retail jobs was the largest since April, bringing total job losses since February, 1990, to 425,000 Ms. Norwood said.
Other parts of the labor Department report also suggested weakness. The average work week fell from 34.5 to 34.3 hours, the same as in August. Average hourly earnings and weekly earnings also were lower.