Leading Indicators Fall 0.2%, Trade Deficit Hits $11 Billion in March

Reporting another indication of economic weakness, the Commerce Department said Tuesday that the government’s main economic barometer fell 0.2% in March.

The dip in the index of leading indicators--together with another large merchandise trade deficit in March--disappointed Administration officials, who had been hoping for some positive signals before President Reagan departed Tuesday evening for the European economic summit meeting in Bonn.

The index remains about where it was a year ago, said Commerce Secretary Malcolm Baldrige, “and is likely to remain sluggish until the dollar falls. The economy probably will strengthen during the current quarter, but domestic production gains will be limited by higher imports and flat export sales.”

At the same time, the department reported that factory orders fell in March by 0.9%, the second straight monthly decline and the eighth drop in factory orders over the last 12 months.

“Business is just not very confident about the expansion at this point,” said Robert Gough, an economist at Data Resources in Lexington, Mass. “I don’t think the decline in the overall index should be overinterpreted, but there are some real indicators of weakness out there.”

Downward Revisions

Along with the dip in the leading indicators for March, the Commerce Department also revised downward the gains posted in the previous two months, dropping the February increase from 0.7% to 0.5% and the January figure from 1.5% to 1.3%.

Like Baldrige, many economists have placed much of the blame for the economic slowdown on the continuing strength of the U.S. dollar, which makes it more difficult for American business to compete against foreigners.

Despite a modest decline in the dollar’s value over the last few months, the nation chalked up an $11-billion foreign trade deficit in March, only a slight improvement from the $11.4-billion deficit in February.

“With a more normal performance by the consumer, we can no longer hide our hemorrhaging trade sector,” said Robert Barbera, chief economist at E. F. Hutton in New York. “We need a lower dollar and lower interest rates.”

In March, imports rose 0.7%, despite sharp declines in shipments of petroleum and automobiles to the United States. Exports rose by 3.3%, reflecting a big boost in foreign sales of commercial and military aircraft, which tend to run in bursts.

Continuing Signs of Weakness

The trade deficit hit a record $123.3 billion in 1984 and so far this year has reached $32.8 billion, slightly ahead of last year’s pace.

The continuing signs of economic weakness, which began last summer when the pace of growth sharply declined, may encourage the Federal Reserve Board to loosen its credit reins and allow interest rates to drop in an effort to revive the economy’s health.

The Commerce Department recently reported that economic growth in the first quarter, adjusted for inflation, was at an annual rate of just 1.3%, far less than the 4% growth that the Reagan Administration is counting on to help stabilize the budget deficit and prevent unemployment from rising.

But the Fed cannot go too far because of fears that excessive growth in the money supply might lead to a pickup in inflation.

7 of 10 Indicators Down

“(Fed Chairman) Paul Volcker is going to need peripheral vision in the next few months,” Data Resources’ Gough said. “On one side he has to worry about the inflation front, but on the other he has to pay attention to the broad indicators of economic weakness.”

In the report on leading indicators, seven of the 10 available statistics were down. Only the average work week, building permits and initial claims for unemployment insurance showed improvement.

The negative influences on the March index, in order of importance, were from net business formations, orders for plant and equipment, new orders for consumer goods and materials, performance of vendors, sensitive materials prices, stock values and the money supply.