‘Dark Clouds’ for Economy : Index Takes Biggest Fall in 3 Years

The government’s main economic forecasting gauge plunged 1.2% in August, its steepest fall in three years and an indication, one economist said, of “nothing but dark clouds” ahead.

Seven of the 11 components of the Commerce Department’s Index of Leading Indicators were off, including stock prices and an index measuring consumer confidence.

Orders for new plants and equipment dropped. Unfilled orders to U.S. manufacturers fell, as did building permits and the money supply. Weekly unemployment claims were up.

The report was the first government look into the economic future since Iraq occupied Kuwait Aug. 2.

The only positive contributors were slower business delivery times, an increase in orders for consumer goods, an increase in the price of raw materials and a longer workweek.

But economist Kermit Baker of Cahners Economics in Newton, Mass., said even the longer workweek might be misleading.

“Perhaps it’s an indication that industry is trying to get by with its current work force rather than hire new people,” he said.

Other economists were similarly gloomy.

“The decline in the leading indicators provides further proof that the recession began in August,” said Jerry Jasinowski, president of the National Assn. of Manufacturers.

“If we’re not in a recession, we’re skating close to it,” said John Silvia, a financial economist with Kemper Financial Services Inc. in Chicago.

Baker was even more blunt.

“There’s nothing but dark clouds,” he said, noting that preliminary economic indicators released this month “indicate that the August number was not a one-month phenomenon . . . the picture I’m getting is that this is a long-term trend.”

The drop in the index, designed to forecast activity six to nine months ahead, was the sharpest since a 1.4% decline in the month after the Oct. 19, 1987, stock market crash, when the Dow Jones average of 30 industrial stocks plummeted 508 points in one day.

Many economists believe Wall Street has now turned bearish again and is in for a prolonged period of falling prices.

“Since the stock market is a forward-looking indicator, the precipitous decline in stock prices is more tied to expectations of recession than to the deterioration in corporate earnings witnessed so far,” Jasinowski said.

The general definition of a recession is two consecutive declines in the gross national product.

LEADING INDICATOR INDEX

Seasonally adjusted index, 1982=100 Aug. ‘89: 144.8 July ‘90: 146.0 Aug. ‘90: 144.2 Source: U.S. Dept. of Commerce