Key Growth Index Declines

Mixed data released Thursday did little to suggest that the economy is growing at anything better than a snail’s pace, with a key index of future activity falling sharply but retailers making headway.

The index of leading economic indicators dropped 0.5% in January to its lowest level in more than two years. Its decline was widely expected following a powerful blizzard that disrupted business, and analysts were hesitant to read much into the news.

However, when combined with a report that shows initial claims for jobless benefits rose by 6,000 last week and word that retail sales picked up in February, the data began to tell a story.

“We’re getting mixed signals,” said Peter Jaquette, a senior economist at WEFA Group, an economic consulting firm. “That’s very consistent with an economy that’s growing quite slowly.”

The economy’s slow growth has been well-documented, and the Federal Reserve Board has been bringing interest rates down in an effort to give it a kick. Nevertheless, financial market participants have been scrutinizing recent data for signs of improvement.

U.S. bonds were little changed Thursday. The benchmark 30-year Treasury bond’s yield was steady at 6.46%. U.S. stocks rose, with the Dow Jones industrial average closing up 11.92 points at 5,641.69.

A strengthening economy would tend to dissuade the Fed from cutting rates further. However, recent economic news has been contradictory, and many economists foresee further interest rate reductions.

The leading indicators index, put out by the Conference Board, a private research group, is seen as an important indicator of the economy’s direction. The January decline contrasts with an increase of 0.2% in December. The index fell 0.2% in November.

Its January reading of 100.2 was the lowest since it stood at 99.7 in November 1993. Wall Street had been looking for a 0.6% decline.

“A number like this taken at face value would mean the economy is dipping into recession in the next six months,” said Kathleen Stephansen, a senior economist at Donaldson, Lufkin & Jenrette Securities Corp. “You need to take it with a grain of salt because it’s due to the weather.”

Other economic data released Thursday were also colored by unusual events.

Jobless claims, which posted a smaller rise than had been expected, represented a rebound from an unusual decline the week before, when the Presidents Day holiday caused a shortened filing period.

The Labor Department’s report had new applications for unemployment benefits at a seasonally adjusted 363,000, up from a revised 357,000 for the week ended Feb. 24. A drop of 25,000 during the week of Feb. 24 was steeper than the initial estimate of 23,000.

Another report, the Fed’s tally of consumer credit, showed an increase of $10.3 billion in debt during January, after gains of $9.8 billion in both November and December. Analysts were surprised by the increase; they had expected a slowdown because the bad weather kept consumers out of stores.

“We can easily say the economy is still in a slow-growth mode, but the question is when we get clear statistics, that are not tainted by the weather or calendar considerations, whether the economy is in fact decelerating,” Stephansen said.

Economists and Wall Street traders were particularly looking ahead to the employment report for February, due today, as an important indication of how the economy is performing.

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Leading Indicators

Seasonally adjusted index; 1987=100

Jan. 1996: 100.2

Source: Commerce Department