Jump in Leading Indicators Fuels Talk of Recovery : Economy: The 0.8% rise for February is the second in as many months. Experts remain cautious, however, since the index posted gains through the first half of 1991 before stalling.
The nation’s main barometer of economic performance jumped sharply in February--the second consecutive month of improvement--suggesting a recovery is under way, the Commerce Department said Tuesday.
The index of leading indicators increased 0.8% during the month, following the large revised gain of 1% for January. The index, which measures 11 factors ranging from factory orders to stock prices, offers a portrait of the economy’s health as far ahead as nine months.
The back-to-back gains for January and February “show that a recovery has begun,” said Lawrence A. Hunter, vice president and chief economist of the U.S. Chamber of Commerce.
Meanwhile, consumer confidence is on the rise. The Conference Board reported Tuesday that its index of consumer confidence enjoyed the biggest jump in a year. The New York economic research organization said the index rose to 54, up from 47.3, marking the most rapid advance since the end of the Persian Gulf War last February.
The optimistic theme of the Conference Board report echoed a Times Poll released Monday that found Americans are becoming more positive about the business climate. The Times Poll reported that 28% of those surveyed in late March expect the economy to improve in the next three months, compared to 21% in February and just 14% last November.
In another report Tuesday, the nation’s purchasing managers reported gains in production and orders. The Chicago-based group said its business index rose to 51.1% in March from 48% in February. An index reading above 50% suggests expansion while a level below 50% signals a slowing economy.
But the most encouraging news Tuesday was the Commerce Department’s report on the leading economic indicators. Seven of the 11 items included in the index advanced during February.
On the positive side, there was a longer average workweek for factory employees, manufacturers reported increased orders for consumer goods, prices increased for raw materials, the money supply expanded and deliveries were slower, a sign of increased demand. In addition, more building permits were issued, and a survey of consumer sentiment also showed improvement.
On the negative side, the stock market declined, there were more first-time claims for unemployment insurance, contracts declined for new factory construction and capital equipment orders, and there were fewer unfilled orders for durable goods, such as automobiles and appliances.
The index for February was 147.6, with the year 1982 equal to 100.
Despite the improvement, most experts are cautious, noting that the index of leading indicators climbed each month from January, 1991, until it stalled in August, and the economy plunged back into the doldrums.
“The indicators and some of their components overstated the robustness of this recovery” last year, said Hunter of the Chamber of Commerce, warning that the euphoria could easily be dashed in April and May.
He also predicted that the pace of any recovery will be “very slow.”
The Bush Administration, while hopeful that the recovery apparently has begun, is urging the Federal Reserve Board to keep the money supply growing at a brisk pace to fuel the expansion of business.
“The economy clearly has been improving since the start of the year,” Michael J. Boskin, chairman of the Council of Economic Advisers, said Tuesday. But the Fed “has to stand ready to make sure we have sustainable money growth.”
Signs of Economic RevivalT he Commerce Department’s index of leading economic indicators, the government’s main economic barometer, rose 0.8% in February, pointing toward a recovery , but one that analysts agree will be weaker than normal. In addition, the Conference Board, a New York-based business research group, said its consumer confidence index soared to 54 in March, up seven points from February and the biggest increase in a year.
Good signs: The indicators showed a broad-based increase--longer average workweeks, growing monetary supply, a rise in building permits, a jump in raw materials prices, more orders for consumer goods and slower delivery times. Taken with a 1% rise in January, the last two months represent the first back-to-back gains since a string of six advances that ended in July. The increase in the consumer confidence index is the largest increase since the end of the Gulf War and the first upturn in the barometer since June. It indicates a possible uptick in consumer spending, which accounts for two-thirds of economic activity.
Bad signs: Many analysts also contend that the increases in leading indicators overstate the economy’s strength. “January and February probably were distorted by weather and other factors,” said Larry Meyer, a St. Louis economic forecaster. The consumer confidence index increase was based mainly on expectations of the future and showed many consumers had lingering fears about employment and did not plan any surge in big-ticket purchases.
Index of Leading Indicators Seasonally adjusted index, 1982 = 100 Feb., ‘92: 147.6 Jan., ‘92: 146.5 Feb., ‘91: 140.4 Source: Commerce Department
Consumer Confidence From a monthly survey of 5,000 U.S. households, 1985 = 100 1991 March: 81.1 1992 March: 54.0 Source: The Conference Board
