Leading Indicators Jump in January

An index of leading indicators rose in January after recent declines, but many analysts largely dismissed the increase as a temporary bounce in a troubled economy.

The New York-based Conference Board said Thursday that its index of leading economic indicators rose 0.8% to 109.4 in January, suggesting the economy is steering clear of a recession.

But economists said the uptick is just a rebound in business activity after a slowdown in November and December prompted in part by bitterly cold weather and two interest rate reductions.

“It is just a temporary blip,” said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. “January was benefiting because of the warm weather and [Federal Reserve] Chairman [Alan] Greenspan gave us a couple of quick fixes,” he said, referring to interest rate cuts totaling 1%.

Although the rise in January was the largest increase in more than two years, it failed to offset the declines of recent months, the Conference Board said. Last month’s increase followed a 0.6% drop in December, the largest decrease in five years.

Some analysts have expressed concerns that the economy could be headed for a recession, ending a record 10 years of uninterrupted growth.

But Ken Goldstein, economist for the Conference Board, said “the overall signal remains one of moderation in the pace of economic activity, with no recession looming on the horizon.”

Although the rise in the index in January shows that the economy has tiptoed around recession, it does not ease doubts about where it is heading, economist Mark Zandi said.

“We’re dancing with recession. It’s very close. The economy threatens to stall out completely, and if the stock market continues to head down and take consumer confidence with it, the possibility of recession rises significantly,” said Zandi of Economy.com in West Chester, Pa.

To stave off recession, the Fed slashed interest rates twice in January by half a percentage point, and Greenspan indicated that the Fed is prepared to cut rates again.

The fact that the index has jumped reduces the likelihood that rates will be cut before the next meeting of the Federal Open Markets Committee, Sohn said.

“Because we have higher inflation and now a rebound in the leading economic indicators, Chairman Greenspan and his colleagues will probably want to wait and see,” he said.

In a separate report released Thursday, the number of Americans filing new claims for unemployment benefits rose by 4,000 last week after declining the week before, the Labor Department said.

Analysts said the markets tend to discount the report on leading indicators because the performance of its components is widely known before the total index is calculated. Investors were aware of the January bounce, and are focusing on the possibility of a slowdown in February, economists said.

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Index of Leading Economic Indicators

Seasonally adjusted index; 1996=100.

January: 109.4

Source: Conference Board