Economic Gauge Up 0.8%; Recession Danger Declines

The government’s main economic forecasting gauge rose a robust 0.8% in December, the Commerce Department said today in a report indicating that the nation’s sluggish economy can skirt a recession in 1990.

The jump in the index of leading economic indicators followed a tiny 0.1% gain in November and a 0.3% decline in October. It was the largest increase since a similar 0.8% advance last April.

The index, composed of 11 forward-looking statistics designed to forecast economic activity six to nine months into the future, was the latest indication that the economy, while weak, can avoid an actual decline in growth.

The December report showed the index up just 0.4% for the year, contrasted with an increase of 3.9% for all of 1988. It suggests that economic activity this year could be more sluggish than in 1989.

Six of the statistics contributed to the December gain, led by an increase in the backlog of manufacturers’ unfilled orders.

Others showing strength were an increase in plant and equipment orders, higher stock prices, a rise in the money supply, an increase in building permits and a gain in an index measuring consumer confidence.

The biggest drag on the index last month was 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 can also reflect declining demand.

Other negatives were an increase in weekly unemployment claims, a decline in orders for consumer goods and a speedup in business delivery times.

The average workweek was unchanged.

In advance of the report, some analysts had suggested that the current sluggishness is akin to flirting with a recession.

“I think that we’re very, very close,” said Lawrence Chimerine, senior economic adviser for the WEFA Group in Bala Cynwyd, Pa. “I mean, we’re as close to being in a recession without being in one as you can be.”

Nevertheless, Chimerine and other economists found themselves agreeing with Federal Reserve Chairman Alan Greenspan, who told Congress on Tuesday that, while he “wouldn’t want to bet the ranch,” he thinks the economy will avoid a recession.

Growth through much of 1989 was restrained by high interest rates resulting from the Fed’s efforts to slow inflation by keeping a tight rein on credit.