Index of Leading Indicators Rises 0.6% in October : Biggest Gain in 3 Months, but Analysts See Weakness in Manufacturing Sector
An important government barometer of future economic growth rose by 0.6% in October, the largest increase in three months, the Commerce Department reported Tuesday.
But economists attributed most of the gain in the index of leading indicators to factors that may have masked continued weakness in basic manufacturing industries. The consensus: continued sluggish growth in the economy as the pattern of the past two years remains unbroken in the foreseeable future.
Indeed, six of the 11 index components reported Tuesday actually declined, most reflecting real economic activity in such important areas as plant and equipment orders, consumer goods orders and building permits. The strongest positive signals in the index came from such volatile financial indicators as the cost of certain key materials and the money supply. The developments raised the index 1 point to 180.5 from a base of 100 set in 1967.
Decline in Jobless Claims
Administration officials pointed to one unambiguous signal of an improving economy: a 0.2% decline in average weekly first-time claims for state unemployment insurance. That statistic, a White House statement said, “is a very encouraging sign for the prospects for employment in the coming months.”
But private economists noted that the good indicator on jobless insurance claims was mostly offset by a 0.2% decline in the average length of the workweek for factory production workers--another sign of uneasy growth in the manufacturing sector.
“It’s not as good as it looks,” said Martin Mauro of the Merrill Lynch investment firm. “The whole increase was unbalanced,” he explained, “in that real sectors of the economy were down while financial measures were mostly up.”
Mauro added: “The most significant declines were in orders for consumer durables, orders for plant and equipment, and the factory workweek. That suggests that manufacturing is still going to be soft, so there isn’t much chance for a turnaround toward faster growth.”
In contrast to Administration forecasts of 3.2% growth for all of 1986 and about 4% next year, private economists are predicting a much lower annual pace of about 2% during the last quarter of this year and for most of 1987. Mauro is aiming even lower, forecasting 1.9% growth this quarter and 1.2% during the first quarter of 1987.
Data Resources Inc. of Lexington, Mass., is predicting 2.5% growth for all of 1987, a growth pattern that the firm’s David Wyss has recently characterized as “sideways”--a sluggish performance saved from possible recession by the gradual improvement in the nation’s trade balance that almost all economists are counting on.
“What we’re tracking most closely now is the turnaround in trade,” said John Hagens of Chase Econometrics, a Philadelphia forecasting firm. “If we can keep up the improvement there, we can avoid recession.”
Meanwhile, the Bureau of Labor Statistics reported separately that the nation’s economy operated with only a 0.2% annual increase in efficiency during the summer as manufacturers recorded productivity gains smaller than previously estimated.
