Economic Index Surges Healthy 0.7% : Forecasting Gauge Up for 2nd Month; Officials Encouraged

WASHINGTON — The government’s main economic forecasting gauge gained a healthy 0.7% in February, leading the Reagan Administration and some private forecasters to predict an upturn in economic activity in the months ahead.

The Commerce Department said today that the February gain in the index of leading indicators followed an even stronger January increase of 1.5%, the biggest rise in almost two years.

Commerce Secretary Malcolm Baldrige said the new report offers encouragement that current slower growth “will be followed by better performances in the period ahead.”

Baldrige said he was “particularly encouraged” by a 48% rebound in orders for new plant and equipment during February. He said this was a “sign that capital spending this year will again be a driving force in the economic expansion.”

Consistent With Forecast

Baldrige said increases in the leading index of 0.5% a month would be consistent with the Administration’s forecast of 4% economic growth this year. The index has increased only an average of 0.3% in each of the last six months.

Michael Evans, head of Evans Economics, a private forecasting firm, said the two healthy gains in the index could indicate that the slowdown in activity that started last July may have ended in February.

“When the March numbers (measuring business activity) start coming out, I think we are going to see some major strength across the board,” he said. “We won’t get a runaway boom, but we are going to see renewed strength.”

Off in December

The leading index fell 0.5% in December for its fourth decline since last June, when it dropped 0.9%, breaking a string of 21 consecutive advances as the economy recovered from the steep 1981-82 recession.

Analysts believe the economy should enjoy generally moderate growth this year, but nothing like the 6.8% gain in the gross national product recorded in 1984.

While President Reagan repeated his belief Thursday that the economy can achieve the 4% growth the Administration is forecasting, other analysts doubt that assertion.

Part of the pessimism stems from the fact that the government last week issued a preliminary estimate of economic growth of only 2.1% for the first three months of this year, about half what most economists had been expecting.

Some Strong Indicators

The department said February’s healthy gain in the leading index came from strength in 5 of the 10 indicators available.

The bulk of the increase came from a surge in contracts for new plant and equipment, followed by a gain in stock market prices.

Other positive influences were a gain in the money supply, new businesses and the performance of vendors in making deliveries.

The biggest negative factor was a drop in the length of the average workweek. Analysts have said they believe this decline stemmed from unusually severe weather during the month that forced plant closings. They predicted the length of the workweek will rise again in March and will be a big positive factor in next month’s index.