Leading Indicators Up 1.9%, Best in Decade : Gain in Home Sales Bolsters Evidence of Recovery, but Unemployment Still a Concern
A key index of future economic activity surged in December to register the largest monthly increase in almost 10 years, the Commerce Department reported Tuesday, providing the latest evidence of a recovering economy.
In another sign of rebounding economic health, the department also reported that new home sales surged 6.3% in the final month of 1992, finishing the year with a healthy 19.4% gain over 1991--the largest rise in nine years.
But all the improvement in new home sales came in the Midwest and the South; California’s housing market remained weak. Although new home sales rose 5% in the northern part of the state, the market plunged 15% in Southern California.
The government’s index of leading economic indicators rose 1.9% in December, the third monthly gain in a row and the largest monthly increase since April, 1983, the Commerce Department said. Heightened consumer confidence--as measured by the University of Michigan--and increased factory orders were among the positive indicators cited in the report. Nine of the index’s 11 leading indicators were positive.
The improvement was welcomed by the Clinton Administration, which is putting the final touches on an economic stimulus and growth plan to be presented to Congress on Feb. 17. But a White House spokesman and several private economists expressed concern that conditions in the nation’s job market remain lackluster.
Tuesday’s report from the Commerce Department “is welcome news,” White House Communications Director George Stephanopoulos said, “but it still hasn’t been translated into job growth.”
Economists cautioned that a sustained recovery will require a corresponding decline in the unemployment rate, which remained stuck at 7.3% in December. (The jobless rate for January will be released Friday.) Analysts noted that the national figures do not reflect the weakened state of the California economy, which is at best stagnant and may face worse days ahead. California’s jobless rate, though down from 10.1% in November, remained high at 9.7% in December.
“Southern California really rode the good times of spending binges of the 1980s and now is one of the ones that has one of the more painful adjustments of the ‘90s,” said Barry Bosworth, an economist at the Brookings Institution in Washington. “For California to begin to work its way out of its difficulties, it’s going to need a much stronger economy than this one right here.”
The growth reflected in the Commerce Department’s index is one fueled, in part, by a healthy holiday retail season and a construction boom in southern Florida in the wake of Hurricane Andrew. Manufacturing productivity also increased substantially in most parts of the country.
General growth--as measured by changes in the gross domestic product--remains less than 4%, making this one of the most sluggish recoveries on record. Economists attribute the slow growth in large part to the lack of new jobs. They disagree on whether the economy is strong enough to generate enough work to keep the recovery going.
“The system is flashing a green light and it’s too early to say that employment won’t follow,” said Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University in Atlanta. Ratajczak and others argue that manufacturers, having reached their productivity limits with the employees they have, will soon be forced to hire new workers to continue to increase profits.
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But other economists worry that the current figures mean little without a parallel upsurge in employment. “Unless the companies come in and spend the money, unless the productivity creates jobs in sufficient volume, you just can’t get that (economic) expansion,” said Edward McKelvey, economist for Goldman, Sachs & Co. “Confidence is going to fade.”
Economists were also divided on whether Clinton’s proposed stimulus package is still necessary in what appears to be an improving economic climate. The Administration’s economic shot in the arm may end up being too little too late, some economists said. They noted that the effects of the stimulus would not begin to be felt until the end of 1993, and that any money injected today must eventually be extracted at a future date from the increasingly unwieldy deficit.
“It will help solidify the recovery and create some jobs that are not there now,” McKelvey said. “But the more (spending) they do up front, the bigger the deficit problem they are going to have to solve later on.”
Index of Leading Indicators
Seasonally adjusted index, 1982 = 100
Dec., ‘92: 153.0
Nov., ‘92: 150.1
Dec., ‘91: 144.7
Source: Commerce Dept.
New Home Sales
Seasonally adjusted annual rate, thousands of units
Dec., ‘92: 656
Nov., ‘92: 617
Dec., ‘91: 578
Source: Commerce Dept.
