Index of Leading Indicators Rises 0.4% in Month; Sales of New Homes Slump 3.6%
The government’s chief barometer of future economic activity rose a moderate 0.4% last month, the Commerce Department reported Wednesday, suggesting that the economy will continue to improve this year.
The increase in the index of leading indicators--which matched February’s revised 0.4% increase--was powered by a jump in stock prices, as well as by several indications of stronger business demand, such as a drop in new jobless claims, a slowdown in delivery of goods and a rise in new orders for plant and equipment.
“The economy is looking like it’s in pretty good shape,” said David Wyss, a senior economist at Data Resources, a forecasting firm based in Lexington, Mass. “We should get a moderation in growth this quarter but after that we see some substantial gains ahead.”
Like Wyss, many analysts believe that the economy will falter between April and June before picking up speed again later, because of the large buildup in inventories earlier this year. But others are more optimistic, arguing that the restocking of shelves, along with a recent improvement in the underlying trade outlook, portends strong growth ahead. They predict growth in line with the 4.3% rate of gain in the nation’s gross national product for the first three months of the year.
Meanwhile, the nation’s strong housing sector could be on the verge of a slowdown, according to the government report. Sales of new single-family homes dropped 3.6% in March, which would produce a seasonally adjusted annual rate of 699,000 homes.
Decline of 22.4%
The March drop brought home sales to a level 22.3% below a year before, when sales were running at the exceptionally fast pace of 900,000 units. Adding to the potential difficulty facing the housing industry is the recent sharp jump in home-mortgage rates.
But some analysts dismissed the dip, pointing out that preliminary February sales were revised upward and suggested that unusually cold weather in the Midwest and Northeast were chiefly to blame for slowing home shopping.
David Seiders, chief economist of the National Assn. of Homebuilders, said the industry’s first quarter was “very, very nice indeed” and that prospects are for a relatively strong year for housing despite the mortgage rate hike.
Looking at the leading indicators, Robert Ortner, undersecretary of commerce for economic affairs, said the rise was consistent with an annual economic growth rate of at least 3%, which is near the Administration’s forecast of 3.2% for the year.
“Excluding stock prices, the rate of increase was still a healthy 6.2% and is consistent with 3% or more overall economic growth during 1987,” Ortner said in a statement.
Adjusted for inflation, the GNP expanded at a real rate of 2.5% in 1986.
With economists divided on growth projections for the next few months and with the unreliability of the leading indicators as a gauge on a month-to-month basis, the first solid clue to recent activity will come on Friday, when the Labor Department reports on employment growth in April.
Overall, six of the nine leading indicators available for the March calculations made positive contributions in March, including a pickup in orders for consumer goods and a rise in building permits.
Three indicators held back a rise in the index. The largest negative factor came from a drop in the length of the average work week, followed by changes in raw materials prices and a slowdown in growth of the money supply.
Two indicators, business and consumer credit and business inventories, were not available for inclusion in the initial report. They will be included in a later revision.
The index has risen in five of the last six months, falling in January by 0.4% after a powerful surge of 2.3% in December.
The December surge reflected the rush of buying activity aimed at beating the changes in tax law that occurred on the first of this year.
As of last month, the index stood at 187.5; its 1967 base is 100.
