A closely watched gauge of future economic activity rose in September following two consecutive declines, as consumer expectations improved, an industry-backed research group said Thursday

The Conference Board said its Index of Leading Economic Indicators edged up 0.1 percent to 137.7 last month. The index had slipped 0.3 percent in July and 0.2 percent in August.

The index is designed to predict economic activity three to six months in the future.

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The small gain in September fit with economists' expectations that growth will slow in the coming months.

"The leading index started to point to slower growth ahead a year ago; that's where we are now," said Ken Goldstein, the Conference Board's labor economist.

"Growth, but slower growth," he said. "And the latest readings tell us that's where we're going to be for a while," possibly into the first half of 2007.

Over the past six months, the index has fallen 0.9 percent. It has declined in five of the last eight months, with areas of weakness including manufacturers' orders for goods and housing permits as the housing market has softened.

Americans have been hit with a declining housing market, but also have seen relief in their fuel bills recently as crude-oil prices have fallen from record highs.

The government reported Wednesday that consumer prices fell by the largest amount in 10 months in September, easing worries that inflation was about to get out of control. Core inflation, which excludes energy and food, edged up by a moderate 0.2 percent, the third straight month of modest gains following higher readings earlier in the year.

Investors believe the inflation indicator will convince the Federal Reserve that its goal of slowing the economy enough to cool inflation pressures is working and officials won't feel the need to boost rates further either at next week's meeting or for the rest of the year.

Five of the 10 indicators that comprise the leading index increased in September — consumer expectations, real money supply, stock prices, average weekly initial claims for unemployment insurance and manufacturers' new orders for nondefense capital goods. The negative contributors were building permits, average weekly manufacturing hours, vendor performance, interest rate spread and manufacturers' new orders for consumer goods and materials.

The Conference Board's index of coincident indicators, which measure current economic activity, was unchanged in September at 123.3, while its index of lagging indicators, which measure past performance, rose by 0.2 percent to 124.3.

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