Economic Index Declines, Easing Inflation Fears : Recovery: The 0.1% dip in the index of leading indicators for February shows that the growth rate is not excessive, analyst says.

In an economic report that helped drive Tuesday’s rebound in the stock market, the Commerce Department said its latest index of leading indicators showed a decline after six straight monthly gains.

The February dip of 0.1% in an index that is supposed to forecast economic trends nine months ahead was interpreted on Wall Street to mean the robust recovery is easing some, which may slow the rise in interest rates.

But many economists dismissed the report as skewed by severe weather that hampered building in February and briefly closed some factories. They also said a slowing of the economy’s heated fourth-quarter momentum was inevitable.

The index had risen a strong 0.4% in January, the sixth consecutive increase, as total national output of goods and services steadily gained momentum. In the October-December quarter, economic growth hit a 7% rate.

“This is an indication that the economy is not on an explosive growth course,” said economist Lynn Reaser of First Interstate Bancorp in Los Angeles. She said she expected gross domestic product to slow to a healthier 3.5% rate of growth in the first quarter that ended March 31.

In the wake of Tuesday’s leading-indicator report, long-term interest rates declined to 7.29% from 7.4% the previous day. It helped trigger the 82.06-point rebound in the Dow Jones industrial average.

The reversal in the Dow halted a slide blamed on investor fears that the economy was growing too strongly and that the Federal Reserve would be forced to push interest rates still higher to dampen inflationary pressures.

“Even people with a lot of faith in that index don’t think one month means anything,” said Adrian Throop, senior economist at the Federal Reserve Bank in San Francisco. “You need at least three months.”

Already, there are initial economic reports from March that show continued strength in the economy. On Monday, the National Assn. of Purchasing Management said its manufacturing index posted a seventh straight rise last month and said weather was no longer a drag on industry.

The leading index measures a basket of economic indicators ranging from unemployment benefit claims to building permits. Six of its 11 components were weaker in February, while four showed some improvement from January and one, plant and equipment orders, was unchanged.

The signals of declining activity in February came primarily from a shorter average work week and fewer building permits. Both were adversely affected by severe winter weather in the East.

The positive indicators in February were lower commodity prices, slower vendor deliveries, fewer initial unemployment pay claims and higher order backlogs.

If fears of an overheated economy are subsiding, California had no such concerns to begin with. Although the state is apparently in the initial stages of a modest recovery, it lags well behind the rest of the country.

“If you want to talk about the national economy getting overheated, you have to realize that a good chunk of the excess (manufacturing) capacity is right here in California,” said Ted Gibson, principal economist at the state Department of Finance.

“But we’re fairly optimistic that the little recovery we’ve got going is not being derailed at this point.”

Index of Leading Indicators

Seasonally adjusted index, 1987 = 100 Feb., 1994: 100.4

Source: Commerce Department