Main Economic Barometer Heads Upward : Resumed Climb Reinforces Consensus Forecast of Steady ’87 Growth
The main barometer of future economic performance resumed its upward march in February with a 0.7% increase, more than offsetting January’s 0.5% drop and reinforcing a consensus forecast of steady growth throughout 1987, the Commerce Department reported Tuesday.
In addition, the January decline of the index of leading indicators was substantially revised upward from an earlier reported 1% drop--a fall most economists attributed to the effect of the new tax law after a December in which goods and equipment purchases were unusually high. The index is now reported to have jumped 2.4% in December, one of the strongest showings in recent years.
Commerce Secretary Malcolm Baldrige noted in a statement that the leading indicators index has been rising at an 8% annual rate during the six months through the end of February. “Based on past relationships, that gain is consistent with stepped-up growth in real GNP during the first half of 1987,” he said.
“The trend looks healthy now,” said Michael Penzer, an economist at Bank of America in San Francisco. “If you average out the tax-related bulge in December and the January slump, you get healthy increases on average for all three months.”
Also, economists noted, the upward push in the index came as much from “real sector” components, including orders for consumer goods and a longer average workweek, as from financial sector components, including the booming stock market and the money supply--which are widely thought to be in perpetual expansion.
The money supply component fell by nearly $11 billion in 1982 dollars, or 0.2%, after a small rise in February. The stock price component, up 0.5% after a 0.4% increase in January, remained the strongest plus factor, though new goods orders were up nearly $5 billion in 1982 dollars, or 0.4%, and the workweek increased from 40.9 hours to 41.2 hours, a 0.3% advance.
In all, the index stood at 187.1, up from 185.8 in February, on a scale calibrated at 100 in 1967.
“The market was a big contributor, but goods orders were up after a big drop in January, and the real sector components indicate things are improving in manufacturing and that should be related to better export figures this year,” said Martin Mauro, an analyst at the Merrill Lynch investment firm in New York.
Goods orders declined 0.3% in January, a tax-related drop, and a strong 0.4% increase in January inventories--denoting an expansion in manufacturing output--was reported for the first time in Tuesday’s upward revision for January. Because the inventory statistic is always reported a month late, no figure in that category was available for February.
“The most important component here is the growth in new orders for manufactured goods,” said Roger Brinner of Data Resources, a forecasting firm in Lexington, Mass. “This reinforces the view that future output should be improving.”
Although the leading indicators are mostly useful in predicting a trend of expansion or contraction in the economy, Brinner cautioned: “They are not a good guide to the magnitude of that change. Everyone agrees the economy will keep growing, but the issue is not whether but how much. We think this report understates what is likely to happen.”
By the end of the year, Data Resources forecasts, the economy will have grown 3.5% above the end of last year: a healthy expansion that would be even better than the Administration’s 3.2% forecast.
Separately, the Commerce Department reported Tuesday that orders to U.S. factories for manufactured goods, paced by heavy demand for military equipment, shot up 4.3% in February, their best showing in five months.
The department said factory orders climbed $5.8 billion on a seasonally adjusted basis in February to $194.6 billion after a 5.3% drop in January. There was a 47.8% surge in orders for defense equipment in February.
