2 Economic Reports Are a Mixed Bag : Commerce: The index of leading indicators rises a fourth straight month in April. New-home sales continue to be weak, however.
The government’s main economic forecasting gauge rose a better-than-expected 0.4% in April, but sales of new homes remained in the doldrums.
Economists said the two reports Tuesday depicted an economy that is not in danger of toppling back into recession but is far from robust.
The 0.4% increase in the Commerce Department’s index of leading indicators was the fourth in as many months, the longest positive stretch since this time a year ago.
However, the gains have been far below the normal range for the early stages of a recovery.
In an even bigger disappointment, the government said sales of new homes rose a tiny 1.3% in April after a 15.9% plunge in March and a 6.7% decline in February. The March drop was the biggest in more than a decade.
Analysts blamed the home sales weakness on rising mortgage rates and an anemic economy that is not generating enough jobs to allow people to buy homes and other big-ticket items.
“We are in a recovery that looks sustainable, but it is plodding and slow,” said Lawrence Chimerine, a senior economic counselor at DRI-McGraw Hill Inc.
Michael Evans, head of a Washington forecasting firm, said the leading index should be rising at 2% or better during this stage of the recovery--if the rebound were normal.
“The increases we have been getting are extremely sluggish,” Evans said. He said he has cut his growth forecast for the second half of the year from 3% to 2.5%, as measured by the gross domestic product, because of a belief that rising oil prices and other inflationary pressures will keep the Federal Reserve from cutting interest rates further to stimulate the economy.
Such an outcome would be a blow to the Bush Administration, which is counting on further Fed rate cuts to bolster the recovery before the November election.
Analysts were uncertain whether the three months of weakness in new-home sales meant that the key sector was faltering or simply catching its breath before posting further gains in the months ahead.
Robert Brusca, an economist at Nikko Securities in New York, said he believes that after a pause, housing will post further gains, contributing to better economic growth in the second half of the year.
“April was a bad month for the economy, but I think that the recovery sprang back with gusto in May,” Brusca said.
Kathleen Stephansen, an economist with Donaldson, Lufkin & Jenrette Securities Corp., said the economy seems headed for annual growth of 3% to 4%, compared to 6% on average for previous postwar recoveries.
“At the present level, we are talking about half the speed,” Stephansen said.
The weak state of home sales worries analysts because the sector was an engine of growth for the recovery late last year and in the first quarter.
David Berson, an economist with the Federal National Mortgage Assn., or Fannie Mae, said housing has “paused” until there is assurance that jobs will be more plentiful and secure.
“Either we need lower interest rates, which doesn’t seem too likely, or else employment and incomes need to pick up,” Berson said.
Analysts noted that an early indication of strength was provided Monday when the National Assn. of Purchasing Managers reported that its index of industrial activity jumped to 56.3%, the highest level in nearly four years.
An even better measurement of May activity will be known Friday when the government releases unemployment figures for the month. Many analysts believe that it will show that the economy added a healthy 100,000 jobs last month. They do not expect the increase to be enough to force the unemployment rate down from its April level of 7.2%.
The 0.4% gain in the leading index, a compilation of 11 forward-looking indicators, followed a similar March increase and gains of 0.8% in February and 0.9% in January.
In all, four of the 11 indicators contributed to the April advance, with the biggest source of strength coming from a rise in the price of raw materials. The index views an increase in raw materials as a plus for future economic activity because it indicates rising demand.
Other positive forces were a decline in the number of workers filing for unemployment benefits, an increase in manufacturing orders for consumer goods and a rise in consumer confidence.
Five of the indicators held the index back. The biggest negative factor was weak growth in the money supply. The Administration has been pressuring the Fed to cut interest rates further to counteract slow money growth, but many analysts believe that inflation worries will keep the Fed from cutting rates.
Other negative factors in April were a decline in building permits; an increase in business delivery times, indicating less demand; a drop in plant and equipment orders, and a decline in the backlog of unfilled orders.
Two indicators, stock prices and the length of the average workweek, were unchanged in April.
The various movements left the leading index at 148.9 in April.
Index of Leading Indicators
Seasonally adjusted, 1982 = 100
April, ‘92: 148.9
March, ‘92: 148.3
April, ‘91: 141.9
New Home Sales
Seasonally adjusted annual rate, thousands of units
April, ‘92: 530
March, ‘92: 523
April, ‘91: 506
Source: Commerce Department
