Reports Hint at Weakening of Economy

Hints of a slowdown showed up in a batch of U.S. economic reports issued Wednesday, but the economy was still expected to ring in the new year with a fair amount of vigor.

The index of leading economic indicators, a forecasting gauge, recorded a slight gain of 0.1% in November after an identical increase the previous month, according to the Conference Board research group.

Also, the Chicagoland Business Barometer index, a survey of manufacturing activity in the Midwest, eased to 58.1 in December from a relatively high 59.5 in November. But it remains well above the level of 50 that indicates an expanding manufacturing sector.

In a third report, the Labor Department said new applications for unemployment benefits jumped 13,000 to 318,000 in the week ended Dec. 27. But economists said the data were difficult to interpret because of distortions from a shortened claims period during Christmas week.

“When you look at these indicators, along with all the other indicators we’ve seen recently on the economy, they show that the economy has a good bit of momentum going into 1998,” said economist Mark Vitner at First Union Corp. in Charlotte, N.C.

The leading indicators index is intended to predict potential shifts in the business cycle three to six months in advance. The gain for November, although small, was consistent with expectations that the U.S. economy’s nearly seven-year expansion will remain on track through early next year.

“Growth in the economy will start to slow in the middle part of 1998,” Vitner said.

Financial troubles in Asia are expected to knock one-half to 1 percentage point off economic growth in 1998.

However, former Commerce Department Undersecretary Everett Ehrlich said such predictions may exaggerate the effects from the troubles abroad.

“The recent data don’t give evidence of much of a slowing,” said Ehrlich, who now heads the consulting firm ESC Co.

Aside from Wednesday’s reports, he pointed to data on factory orders, the housing market and retail sales.

Many economists believe the sales were moderate in the final three months of 1997 after what Ehrlich called a “Herculean third quarter.”

In one possible effect of the Asian problems, the prices-paid component of the Chicagoland Business barometer slipped to 59.1 from 60.5. Vitner said that might reflect a decline in import prices due to weaker Asian currencies.

Separately on Wednesday, the Bureau of National Affairs, a private news and information group, released a survey of economists that forecast U.S. economic growth of 2.3 percent in 1998, down 1.4 percentage points from the expected pace of 3.7 percent for 1997.

The bureau said the Asian crisis was the “wild card” in the economists’ forecasts.

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Index of Leading Economic Indicators

Seasonally adjusted index;

1987=100

Nov.: 104.6

Source: Conference Board