Economic Indicator Falls as Building Permits Drop

The government’s chief economic forecasting gauge fell 1.0% in February, the Commerce Department reported today, but analysts said it would have changed little except for a drop in building permits.

The Index of Leading Economic Indicators, designed to forecast economic activity six to nine months in advance, had risen the previous three months.

But because of the unusual circumstances surrounding the index’s building permit component, many analysts expressed skepticism in advance of the February report.

The analysts said today’s index would be lowered by the February drop from the unusually large number of permits builders sought in January to take advantage of record warm weather and to beat a deadline for meeting expensive new building standards.

The standards, required by 1989 fair housing legislation, are designed to make apartment buildings more accessible to the handicapped. The National Assn. of Home Builders said the standards would add between $3,600 and $7,200 to the cost of an apartment.

Seven of the 11 forward-looking statistics contributed to the decline, led by the steep fall in building permits.

Other negatives included faster business delivery times, lower stock prices, a decline in plant and equipment orders, a decrease in the price of raw materials, a decline in the backlog of manufacturers’ unfilled orders and a drop in an index measuring consumer confidence.

Three of the components were positive, including an increase in orders for consumer goods, a gain in the money supply and a drop in weekly unemployment claims.

One indicator, the length of the average workweek, was unchanged.

Michael Evans, head of a forecasting organization, said that without the anomaly in building permits, the index would have been up slightly.