Leading Economic Indicators Take Worst Fall in 2 1/2 Years : But Experts, Citing Effect of Tax Law Change, Discount Full Percentage Point Drop in January

The government’s main barometer of future economic activity--the index of leading economic indicators--plunged a full percentage point in January, the largest drop in 2 1/2 years and the end of a string of six consecutive months without a decline.

However, economists discounted any cause for alarm, saying that the steep decline was expected and that it counterbalanced a sharp upsurge in December caused by the new tax code.

“December rose that far because of unusual year-end factors such as tax reform, so we are just seeing the index come off that,” said Irwin Kellner, chief economist at Manufacturers Hanover in New York.

Few analysts saw signs of an economic slowdown. “If the Commerce Department is right that inventories were washed out in the fourth quarter, then we should do reasonably well this year,” said Roger Brinner of Data Resources Inc. of Lexington, Mass., who predicted a 3.5% growth in the gross national product for 1987.

The steepest January declines in the index of leading indicators were in orders for plant and equipment, building permits and orders for consumer goods--all categories that had surged in December, when the index leaped 2.3%. December provided the last opportunity to take advantage of favorable tax treatments that ended when the new tax law became effective.

Although the January drop of 1 percentage point was the largest since July, 1984, the index remained a healthy 1.3% above November’s level.

“In any case, in an indicator as volatile as this, it takes three monthly declines in a row before you even start to worry about an economic downturn,” Kellner said.

In the January report, building permits dropped by 0.4%, orders for consumer goods by 0.4% and orders for capital goods by 0.6%.

In addition to the new tax law’s effect, the huge drop-off in equipment orders reflected an ingrained habit among many businesses of delaying capital goods transactions until the end of the year, said Martin Mauro, analyst at Merrill Lynch in New York. He said the big 0.5% December surge in building permits may be partly attributable to a higher fee imposed in California effective in January.

Mauro, citing the recent binge in consumer spending, said he expects a slowdown in buying throughout 1987, “which should translate into faltering production and slow growth.” But he said that should be counterbalanced somewhat by expected improvement in the nation’s trade deficit.

He noted that the financial firm of Merrill Lynch is predicting sluggish 2% growth in the first half of the year, with improvement after June as exports rise and imports, hit by the decline in consumer spending, drop.

The expected turnaround in trade, spurred by the decline in the value of the dollar, also underlies Brinner’s optimistic 3.5% growth forecast for the GNP, which outstrips even the Administration’s prediction of 3.2% growth.

“In real terms, exports began to increase last summer and imports began to decline last fall, even though that doesn’t show up in the nominal trade figures they read every month on Capitol Hill,” Brinner said.

One component in the index, new business formations, is being dropped by the Commerce Department as unreliable--although it was included in January’s index.

Kellner warned that in the next few months, as consumers begin to realize that consumer interest is only partly deductible under the new tax law, the component that measures changes in business and consumer borrowing also will become less reliable as an index.

Separately, the Commerce Department reported that sales of new homes fell 6.8% in January, while the median price of a new home topped $100,000 for the first time in history.

New, single-family homes were sold at a seasonally adjusted annual rate of 716,000 units in January, after sales rose a sharp 12.1% in December.

The median price of a new home jumped 6.4% in January to $100,700, the first time it has topped $100,000.

The median price, which stood at $94,600 in December, means that half the homes sold for more and half for less.

The average home price also rose in January to a new record of $127,100, compared to an average sales price of $119,100 in December.