Index of Leading Indicators Slips 0.2% in November

The Commerce Department reported Friday that its chief economic forecasting gauge edged down 0.2% in November, continuing a sawtooth pattern that analysts said portends a slowdown but no recession in 1989.

The sluggishness in the department’s index of leading economic indicators was actually viewed as good news by some experts, who said it should ease fears that the economy was growing at a pace threatening new inflation.

The 0.2% November decline was the fourth drop in the past seven months. Since May, the index has alternated between gains and declines, showing very little forward momentum.

The index has risen by just 1.6% over the past 12 months, less than half of the 4.1% increase of the previous 12-month period, suggesting that overall economic growth will slow significantly in 1989.

White House View

The Reagan Administration said the setback in the leading index was nothing to become alarmed over, showing only that the economy was slowing a bit. The traditional signal for a recession in the past has been at least three consecutive monthly declines in the index.

“The data continues to suggest a trend toward slower but continued economic growth and moderate inflation in the months ahead,” White House spokesman Roman Popadiuk told reporters in Palm Springs where President Reagan is vacationing.

Private analysts agreed, forecasting that overall economic growth, as measured by the gross national product, will probably dip to around 2.5% in 1989. That would be down from an expected growth rate of 3.9% in 1988, the economy’s best performance in four years.

“If we allow for the normal nine-month lag, (the data suggests) we’re definitely going to have slower growth in 1989,” said John Hagens, vice-president of WEFA Group in Bala-Cynwd, Pa. “There’s no indication here of recession,” he said, “but growth will be significantly lower than this year.”

Hagens said WEFA Group forecast the nation’s economy would expand at a real rate of only 2.7% in 1989 after growing by about 3.9% this year.

“We turned in a real strong 1988 despite the drought, but it is virtually certain that we will see slower growth in 1989,” said David Seiders, chief economist of the National Assn. of Home Builders.

Economists said that with many factories producing at near-peak capacity and the unemployment rate near a 14-year low, a slowdown is needed to dampen inflationary pressures. Most said they saw little danger that the slowdown would threaten a recession next year.

“Because we are still growing at a fairly rapid clip, we can slow quite a bit before there is a danger of a recession,” said Richard Peach, senior economist at the Mortgage Bankers Assn. “This slowing will be very good news for the economy because it will remove inflationary pressures.”

The Federal Reserve has been nudging interest rates up since last March and analysts said they expected further credit tightening moves in the early part of 1989 until the central bank becomes convinced that inflationary forces are under control.

In November, four of the available nine indicators contributed to the decline in the leading index, which fell to 193.2% of its 1967 base of 100.

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.