Economic Index Up 0.9%; Recession Seen Less Likely

The government’s chief economic forecasting gauge climbed 0.9% in February, a sharp rebound following several months of weakness after the October stock market collapse, the Commerce Department reported today.

The gain in the index of leading economic indicators was the biggest increase since last June. It followed declines of 1.1% in January, 0.1% in October and 1.2% in November.

Only a 0.4% rise in December kept the index from posting consecutive declines for three or more months, the traditional signal of an impending recession.

But with the big February increase, analysts said they believe that the leading index is accurately signaling that the economy slowed in the early part of 1988 but that the country will avoid a recession this year.

“I think we can pretty well bury the recession fears,” said Robert Dederick, executive vice president of Northern Trust Co. in Chicago. “We have an economy where growth has slowed but which is still pushing ahead.”

New Home Sales Up 20.3%

In another upbeat economic report today, the Commerce Department said sales of new homes jumped 20.3% in February, the biggest advance in almost two years. The increase followed three consecutive monthly declines as high mortgage rates and the stock market plunge had cooled buyer demand.

The 0.9% February increase in the leading index was led by a big jump in applications for building permits, which provided more than half the strength last month.

In all, five of the available nine indicators were positive forces on the index. After building permits, the biggest contributors were a drop in new unemployment claims, a rise in stock prices, an increase in the growth of the money supply and higher orders for consumer goods.

Four of the indicators held the index back. The biggest negative factor was a decline in the length of the average manufacturing workweek, followed by a decline in orders for plant and equipment, a change in raw materials prices and a speedup in business delivery times, considered a negative because it is often a sign of dropping demand.

‘Economy ... a Lot Better’

The jump in the February index was one of a string of recent reports showing better-than-expected strength in the early part of 1988.

“Right now the economy is looking a lot better than we thought it was going to look three months ago,” said David Wyss, an economist with Data Resources Inc. of Lexington, Mass.

At the end of last year, economists were worried about a huge buildup of unsold products that they feared would lead to declines in factory orders and rising unemployment as businesses scaled back production plans.

While there have been some production declines, notably in the auto industry, employment has risen sharply in the first two months of the year, pushing the jobless rate down to an 8 1/2-year low of 5.7% in February.