Key Forecast Gauge of Economy Shows Modest 0.1% Gain

The government’s main forecasting gauge of economic activity edged up a modest 0.1% last month, the Commerce Department said today in a report that analysts took as a sign the economy will slow in 1990 but not topple into a recession.

The small rise in the department’s index of leading economic indicators for November followed a revised 0.3% decline in October.

In all, the index, which is designed to forecast economic activity six to nine months in the future, has exhibited a sawtooth pattern this year, rising in six of the last 11 months and falling in the other five months.

Through November, the index was down 0.3% for the year, compared with an increase of 3.9% for all of 1988.

To economists, this provided evidence that economic activity in 1990 will be more sluggish than in 1989.

Many analysts are predicting that the economy, as measured by the gross national product, will expand at a modest annual rate of 2% or less in 1990, compared with expected growth of 3% this year.

However, analysts generally expect the economy will be able to escape a recession. That belief is based in part on the fact that the leading index has not yet declined for three consecutive months, the traditional--though not infallible--sign of a downturn.

The 0.1% rise in November, which was right in line with expectations, was led by a strong jump in orders for consumer goods. The other four indicators providing strength were a drop in weekly unemployment claims, an increase in plant and equipment orders, a rise in the money supply and an increase in the backlog of manufacturers’ unfilled orders.

Six other indicators acted as a drag on the index last month, with the biggest negative coming from a drop in the price of raw materials. While such a decrease is considered good news for inflation prospects, it is counted as a negative in the index because it also can reflect declining demand.

Other negative factors were a decline in stock prices, a drop in consumer confidence, a decline in the average manufacturing work week, a decline in building permits and a speedup in business delivery times.

The various changes left the index at 144.7% of its 1982 base of 100.

The gross national product grew at an annual rate of 3% in the July-September quarter, but economists believe the growth rate slowed dramatically in the current October-December quarter.

Frank McCormick, senior economist at the Bank of America in San Francisco, said the GNP probably expanded at an annual rate of just 1.2% in the fourth quarter. The government will not release its own estimate of this growth rate until next month.

Some analysts are even more pessimistic, fearing that the GNP may not have expanded at all and instead registered a small negative number. The most pessimistic say the economy may suffer a small recession with negative growth in both the fourth quarter and the first quarter of next year.

But McCormick discounted this minority view, contending that the Federal Reserve Board’s easing efforts have come in time to keep alive the expansion following the 1981-82 recession, a recovery which already has lasted a peacetime record of seven years.

“We think we have gone through the slowest growth already this quarter and the economy will be gradually picking up through next year,” he said.

That forecast would be good news for the Bush Administration, which is counting on continued growth to boost government revenues and help reduce the federal deficit without a tax increase.