A Key U.S. Index Bounces Back From Big Chill
An important gauge of future economic activity registered its sharpest gain in 20 years in February--mostly because of the return of workers socked in by the January blizzard.
The index of leading economic indicators climbed 1.3% from its depressed levels the month before. The Conference Board, a business research organization, released the numbers Tuesday.
Also Tuesday, the government said economic growth late last year was even slower than previously estimated. The gross domestic product grew at an annual rate of just 0.5% during the last three months of 1995, down from an earlier estimate of 0.9%, the Commerce Department said.
For all of last year, the GDP--the total output of goods and services in the United States--grew just 2%. That’s the smallest annual advance since the economy shrank 1% during a recession in 1991.
Stock and bond prices reacted mildly to the statistics.
While the economy has improved since the fourth quarter, February’s leading indicators don’t signal a coming boom, economists said.
“The blizzard kept a lot of activity in check during January, particularly in the manufacturing sector of the economy,” said William Sullivan, a researcher with Dean Witter, Discover & Co. “We seemingly got a bounce back in those areas during the February period.”
February’s rise was the fastest since a 1.4% gain in January 1976. But economists view the index as a true indication of the future only when it moves in the same direction for three straight months or more.
In January, the index fell 0.5% to its lowest reading in more than two years. February marked only the third time in a year that the index rose from the previous month.
Economists offered some reasons for optimism, saying that labor and political strife that hindered growth earlier this year are less of a factor now.
“We’ve had the shutdown of government offices, major winter storms, the United Auto Workers strike against GM last month and on and on,” Sullivan said. “Now we have some genuine momentum.”
The leading index stood at 101.5 in February, compared with 100.2 in January and 100.7 in December. The index is based on a 1987 benchmark of 100.
Of the index’s 11 components, seven made positive contributions, including the prices of materials, vendor deliveries, unfilled orders for durable goods and building permits. Indicators that brought the index down included consumer expectations and first-time claims for unemployment.
In explaining its downward revision of fourth-quarter GDP, the Commerce Department said business investments increased at just a 3.1% rate in the fourth quarter. These were originally reported up 6.2%.
The trade deficit also was wider in the fourth quarter than initially thought. Imports rose 1.3% instead of just 0.1%.
A measure of inflation tied to the GDP report showed prices remained under control in 1995, rising just 2.5%.
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U.S. GDP
Percentage growth in U.S. gross domestic product, quarterly figures.
Third quarter 1995: 0.5%
Source: Associated Press
