Economic Index Up 0.7%; Signals Continued Growth
The government’s main barometer of future economic performance--the index of leading indicators--increased a strong 0.7% in February, the Commerce Department said Friday in a report that all but promises continued steady growth for months to come.
At the same time, the index for January, which was reported earlier to have dropped a discouraging 0.6%, was revised upward to show no change. Taken together, the positive reports--following a strong 1.5% increase in December--cap 10 consecutive months with no decline. The performance of the index suggests no immediate end for the current expansion, which is well into its fourth year.
Even economists who have deemed the leading indicators as unreliable found much to praise in Friday’s report.
Industrial Sector Strong
The index had been expected to be positive in February because of a booming stock market and a surging money supply. But economists were especially pleased that the largest single positive component for the month involved contracts and orders for new industrial plants and equipment--a clear harbinger of revived growth in the nation’s ailing industrial sector.
“The one thing really encouraging about February was not the stock market or the money supply--we all knew that,” said Robert Gough, a senior vice president of Data Resources Inc. “But the increase in orders for business equipment suggests a vote of confidence for the whole business sector. When you see a strong positive like that, you take the index more seriously.”
Also significant was the overall higher movement of the index even though six of its 12 components were negative. Five of the components were positive. The 12th, measuring the monthly change in business inventories, is almost always reported a month late and was not available.
Two of the negatives, measuring changes in the average workweek and in weekly claims for unemployment insurance, were related to February’s increase in unemployment, which was widely believed to have been a seasonal quirk. A third, a slight decline in building permits, is almost certain to reverse itself as the weather improves and as the impact of lower interest rates is felt, noted Irwin Kellner, chief economist at Manufacturers Hanover.
A fourth negative recorded a slight decline in business and consumer borrowing for the third consecutive month--an indicator that, taken by itself, would be good news to economists worried by the high ratio of debt to equity in the economy as a whole. This, in turn, was related to a slight decline in new orders for consumer goods and materials, a negative that should correct itself if the economy improves as the other indicators predict, Kellner added.
The sixth negative, recording a decline in the price of basic industrial materials, including petroleum, is hardly a negative at all, noted Allen Sinai, chief economist of Shearson Lehman Bros.
May Revise Index Higher
Further, Sinai said, Friday’s report of a solid gain in inventories for January, filling in a category unavailable a month ago, helped revise the index for that month upward. All signs point to another inventory gain in February and perhaps another upward revision a month from now for the whole index, he said.
“It’s still too early to think that the industrial side of the economy is out of the woods,” Sinai said. “But there are hints that we are approaching the end of the most difficult period for the industrial sector.”
The five components of the index that increased in February were signs of order backlogs to manufacturing companies, the stock market, the money supply, new business formations and equipment orders.
White House spokesman Larry Speakes, in a statement issued from Santa Barbara, where President Reagan is vacationing, greeted the upward revision for January and the positive index for February as “the latest in a continuum of strong economic news.”
