Economic Indicators Index Off 0.2% : Up-and-Down Pattern Signals Slowdown, No Recession

The government’s chief economic forecasting gauge turned down 0.2% in November, the Commerce Department reported today, continuing a sawtooth pattern that indicates an economic slowdown but no recession in 1989.

The department’s index of leading economic indicators had risen 0.4% in October after declining 0.3% in September. Since May, the index has exhibited an alternating pattern of increases and declines in each month.

Over the last 12 months, the index has risen 1.6%, less than half the 4.1% increase of the previous 12-month period.

To many analysts this suggests that economic growth will be slower in 1989 but that there should be no recession. The traditional signal of an economic downturn is three consecutive months of declines in the leading index.

While the overall economy, as measured by the gross national product, is expected to climb 3.9% this year, the best performance in four years, many analysts are predicting that growth in the new year will slow to about 2.5%.

Such a slowdown would have the beneficial effect of easing inflationary fears, analysts said. With many industries already operating at close to peak capacity and with unemployment near 14-year lows, economists believe that slower growth is needed to keep the economy from overheating.

“We think a little slowdown is useful right now,” said David Wyss, an economist with Data Resources Inc. of Lexington, Mass. “The economy has been growing too fast and needs to slow to a more sustainable pace.”

In November, four of the available nine indicators contributed to the decline. The biggest negative factor was a speedup in delivery times on business orders. This is viewed negatively for the future because it indicates declining demand for products.

The other negative factors dragging the index down were a fall in stock prices, an increase in weekly unemployment claims and a decline in raw materials prices, also viewed as a negative because it signals falling demand.

Three indicators made positive contributions, led by an increase in growth in the money supply. Other positive forces were a rise in manufacturing orders for consumer goods and an increase in orders for new plants and equipment.

Two indicators, building permits and the length of the average workweek, were unchanged.