Leading Indicators Index, Home Sales Jump in Feburary

The government’s chief economic barometer jumped 0.9% in February, the Commerce Department reported Tuesday, rebounding after several months of weakness that followed last October’s stock market crash.

The sharp increase in the index of leading indicators, the largest gain since last June, provided further evidence that the U.S. economy continues to plow ahead despite widespread fears that the market collapse would trigger an economic downturn.

While many economists consider the leading indicators an inconsistent guide to the future direction of the economy, other bits of data since the beginning of the year also point to steady growth, although at a slower pace than the robust 4.8% gain in inflation-adjusted gross national product that occurred during the fourth quarter of 1987.

Jump Called Encouraging

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

Further confirmation of the healthy outlook came from a separate report by the government Tuesday that the housing business, one of the few relatively weak sectors of the economy recently, appears to be on the mend. Sales of new single-family dwellings soared 20.3% in February for the biggest monthly advance in nearly two years.

Sales of new houses jumped to a seasonally adjusted annual rate of 628,000 units last month, after falling 10.3% in January to a selling rate of 522,000. An unusually cold January is only part of the reason for the early winter slump and last month’s rebound, analysts said. They predicted that housing, often first to collapse before an economic downturn, would continue to pick up speed as long as interest rates remain relatively stable.

“Despite the crash, I’ve always felt this economy was fundamentally strong and now it is beginning to show solid signs of improvement,” said Lyle Gramley, chief economist at the Mortgage Bankers Assn. “The increase in home sales is particularly encouraging. We’ve now got all the ingredients for a good spring building and buying season.”

Many economists believe that the recent evidence makes it all but impossible for the economy to fall into a recession before this year’s presidential election.

At the end of 1987, analysts were worried that a large build-up of unsold goods--much of it at auto dealerships--might force industry to scale back production so sharply that firms would be forced to lay off many workers, bringing the 5-year-old economic expansion to an end.

But the number of unemployment claims has dropped since early January, and the economy added more than 500,000 jobs last month to push the jobless rate to the lowest level in this decade. Moreover, unexpectedly strong auto sales, spurred by the continuation of dealer incentives, has helped slash auto inventories to the point that manufacturers are now planning to boost output modestly this spring.

The sharp gain in the leading indicators followed a period when the index fell in three of the previous four months. A 0.4% rise in December--interrupting declines of 0.1% in October, 1.2% in November and 1.1% in January--kept the index from posting three consecutive monthly dips, which in the past has sometimes signaled an impending recession.

Focus on Components

But many analysts are paying less and less attention to the leading indicators altogether. “Over the past decade, the economy has undergone too many changes to be adequately reflected by this antiquated index,” argued Lacy Hunt, chief economist of Carroll, McEntee & McGinley, a New York bond dealer.

Gramley added: “You have to read the index carefully now. The individual components and whether it is reacting just to financial variables or production variables often tell you more than the overall number.”

The housing rebound--indicated by a big jump in applications for building permits as well as by the increase in home sales--accounted for more than half of the strength of the February rise in the leading indicators. Also contributing to the increase were the drop in jobless claims, a rise in stock prices, an increase in the money supply and higher orders for consumer goods.

Negative factors holding the index back were a drop in the average manufacturing workweek, a dip in orders for plant and equipment and changes in raw material prices and business delivery times.

The various changes left the index at 190.6, up from its 1967 base of 100.