Economic Index Dip Discounted : 0.6% Decline in Leading Indicators Called a Fluke

The government’s major barometer of future economic activity took its first nose dive in nine months Tuesday, but, instead of bemoaning the drop, the White House and prominent forecasters dismissed it as a fluke in an otherwise healthy expansion.

The Commerce Department reported that January’s index of leading economic indicators dropped 0.6%, the largest monthly decline since last April. Most of the drop was blamed on a fall in factory orders from an unusual December peak caused by the purchase of Boeing jet aircraft by Japan.

The drop in equipment orders masked gains in the stock market, manufacturers’ orders for consumer goods, building permits, sensitive materials orders and unemployment insurance claims, officials said.

At the same time, the Commerce Department revised its December economic indicators sharply to reflect a 1.5% gain over November, the largest such increase since June, 1983. The gain initially had been pegged at 0.9%.

Commerce Secretary Malcolm Baldrige called the January drop “an occasional setback” in the nation’s four-year economic expansion, noting that the overall index has risen at a 5.7% annual pace during the last six months.

“Even though the leading indicators declined slightly, the Reagan recovery continues at a healthy pace,” White House spokesman Larry Speakes said.

Economic forecasters said that the January decline, contrasted with December’s revision upward, suggested that the often-cited index is a basically unreliable economic weather vane. The indicators are supposed to foreshadow economic activity three to six months in advance.

‘The Trend Is Up’

“Even in a composite index that incorporates movements of a dozen different activities, it’s possible to have freakish movements, month to month,” said Edgar R. Fiedler, vice president of the Conference Board, a business-supported research group. “And, quite clearly, the trend is up.”

Michael Evans, president of Evans Economics Inc., a Washington forecasting firm, said: “A better way to look at the leading economic indicators would be to average the December and January reports.”

Several economists pointed out that January’s indicators did not directly measure a number of basic changes likely to affect the economy, including a favorable shift in the balance of trade caused by plummeting oil prices and the potentially dampening effect of budget cuts to reduce the federal deficit.

The U.S. economic figures remain the most favorable in the generally improving outlook for the economies of Western nations, the Conference Board’s Fiedler said. The largest cloud on the horizon is in Japan, where indices indicate that the economy went from a 10% annual growth rate in June of last year to a 2% rate of decline in six months.

Slump in Japan Possible

The “abrupt” shift, although not yet long-lasting enough to be definitive, indicates that Japan is entering a recession, Fiedler said. That, in turn, could pose the threat of a steady or growing trade deficit with the Japanese.

Even though the U.S. dollar has fallen in value compared with the yen, making American goods cheaper for the Japanese to purchase, a recession would dampen Japanese demand for foreign goods, while a continued robust U.S. economy would stimulate American purchases of Japanese products.