Leading Indicators Up for 6th Straight Month

The government’s gauge of future business activity rose a moderate 0.3% during October, the Commerce Department said Tuesday, as economists predicted a steady economic course with neither a welcome boom nor a painful slump.

The index of leading indicators, which uses manufacturers’ orders, building permits and other sensitive items to foreshadow economic momentum, increased in October for the sixth straight month.

Although the recovery that began in December, 1982, continues to generate sales and create jobs, it has settled into a sluggish pattern. Businesses have been creating enough jobs to accommodate the growing work force, but the expansion has not proved sufficiently robust to reduce the unemployment rate below the current level of 7.1%.

In another bit of disappointing news Tuesday, the government reported that housing starts fell during October for the third straight month.

However, the general outlook for the economy is “reassuring,” said Sandra Shaber, vice president of the consulting firm of Chase Econometrics of Bala Cynwyd, Pa. “There was concern in the summer that the economy was heading for a recession, but we seem to have avoided that. On the other hand, there is no evidence that we are going into a new period of strong growth.”

The consistency of the economy was illustrated in Tuesday’s revised report for September, which showed an increase of 0.4% in the yardstick of leading indicators. The original estimate for September had been a slim 0.1%, below the trend for earlier in the year.

The leading indicators show that “the flashy state of the recovery is behind us now,” said John M. Albertine, president of the American Business Conference, an association of mid-size, high-growth corporations. “The economy is plodding along in a dependable fashion. We’re not going to be breaking any records for economic growth, but, on the other hand, we’re not going to tumble into a recession.”

A similar assessment was offered by Dirk Van Dongen, president of the National Assn. of Wholesaler-Distributors, with 45,000 small and medium-size firms handling a myriad of products. “Business for our members is good,” he said. “It is not excellent, and it is not poor.”

Among the leading indicators showing improved performance in October were initial unemployment claims, raw material costs, stock prices and manufacturers’ orders for consumer goods.

The Administration insists that the economy will heat up again despite its sluggish performance this year.

“The leading index is pointing toward continued expansion in 1986,” said Commerce Secretary Malcolm Baldrige, predicting that the economy will expand by 4% next year.

The Administration’s goal for this year is a 3% increase in the nation’s output of goods and services, but most economists believe that the final result will be in the range of 2% to 2.5%. Growth averaged about 2.2% at an annual rate for the first three quarters of the year.

Without a new surge of growth, the unemployment rate probably will remain close to the current level, most analysts believe.

“The economy is growing, but it’s not a stellar performance,” said Robert Wescott of Wharton Econometrics, a Philadelphia-based forecasting firm.

“We’re going to see the economy expanding over the next year or two, but we’re not seeing the kind of performance needed to return to full employment.”

The drop in home sales puzzled economists, because mortgage rates have fallen to their lowest levels in five years and the return of the 11% fixed-rate mortgage should stimulate the demand for homes.

Wescott, who still expects a strong gain in home sales, said the short-term behavior of the market sometimes defies explanation.

“The housing market should be healthy,” added Shaber of Chase Econometrics. “It’s just not living up to its potential.”