Key Economic Index Dips 0.3% in November

A key indicator of the nation’s economic health slipped 0.3% in November, the Commerce Department reported Tuesday, reflecting a sharp decline in consumer confidence, an upswing in job losses and other signs of weakness.

The decline in the index of leading economic indicators was the second in three months and the largest since January, when it fell 0.6% amid the Persian Gulf crisis. The drop followed a 0.1% upturn in October and a 0.2% decline in September.

The index, a composite of 11 business indicators, is designed to predict future activity. A companion index that records the economy’s current performance fell a sharp 0.8% in November after dropping 0.2% in October.

In a second report released Tuesday, the department said new-home sales nationwide were unchanged in November. Healthy increases in the South and West were offset by a large decline in the Northeast, the sector hardest hit by the recession. November sales remained at October’s seasonally adjusted annual rate of 520,000.

Economists received the reports with shrugs of sour resignation, saying they provided further evidence that the recession will continue to hobble the economy at least until spring.

“Nobody is going to be surprised by this or draw any new conclusions,” said Donald Straszheim of Merrill Lynch Capital Markets in New York. “It means there is more bad news to come in the economy, which we’ll be seeing in the next few months: more layoffs, more plant closings and the like.”

He predicted, however, that December’s explosive stock market rally would help push the indicators index toward a pallid gain in December.

Like many market economists, Straszheim said he believes that the current mix of low interest rates, low inflation and election-year fiscal policies likely to be enacted by Congress and the White House will bring about a weak economic recovery by the second quarter of this year.

“This was in line with expectations,” declared Allen Sinai of Boston Co. in New York, who has been among the most pessimistic of market economists during the lengthy recession, considered by some the longest since the 1930s.

“Two declines in the last three months is a recession indicator,” he said. “It shows recession now and continuing into the first quarter.”

But Sinai predicted that recovery by spring or summer is a virtual certainty, saying: “1992 will be better than 1991 for sure.”

“Recovery is very, very likely by spring or by the second half of the year. . . . But how much it will recover and how long it can be sustained are future issues.”

David Wyss of DRI/McGraw Hill in Lexington, Mass., said the leading indicators, which climbed steadily from February through July, have been virtually flat or declining slightly since then.

“That about coincides with what we’ve seen in the economy, and I don’t look for much improvement,” he said. Wyss said his forecasting firm foresees continued stagnation through the first quarter of 1992, with slow recovery thereafter.

But although November’s 0.3% drop was the largest one-month decline since January, virtually all of it could be explained by a big decline in consumer confidence--a monthly thermometer reading that plunged in October and November but was reported Monday by the Conference Board in New York to have bottomed out in December.

“The entire drop in November leading indicators was accounted for by consumer expectations,” Wyss said. “Without that, it would have been flat.”

Seven of the index’s 11 components declined. In addition to consumer confidence, down 0.32%, they included new claims for unemployment insurance, up 0.15% (hence down 0.15% on the index of future economic activity); building permits and unfilled factory goods orders, each down 0.1%; consumer goods orders, down 0.3%, and stock prices and the money supply, both down 0.1%.

The report of an unchanged annual rate of new-home sales in November included a 44.6% plunge in sales in the recession-battered Northeast to an annual level of 36,000. Sales in the West rose 14.1% to an annual level of 146,000, a strong 19.7% higher than in November, 1990. Sales in the South rose 9%.

Index of Leading Indicators Dips

(Seasonally adjusted index, 1982 equals 100)

Nov. 1991: 145.1

Oct. 1991: 145.5

Nov. 1990: 139.9

New-Home Sales Hold Steady

(Seasonally adjusted annual rate, thousands of units)

Nov. 1991: 520

Oct. 1991: 520

Nov. 1990: 480