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Date: Wed, 4 Nov 92 12:45:02 EST
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11/4/92


TITLE #m#rama/ak#m#Indicators Index Reveals Sluggish Economy

Barometer's 0.3% Drop In September Is 3rd In Four Months Chuck
Freadhoff

The index of leading economic indicators, the government's main
barometer for future economic activity, fell 0.3% in September,
the third decline in four months.

Six of the eleven components of the index, including the average
workweek and initial claims for unemployment benefits, fell,
while five improved, the Commerce Department said yesterday.

The index is designed to forecast economic activity six to nine
months in the future. Yesterday's report indicates the economy's
performance remains sluggish.  "This is a pretty dismal report,"
said Lynn Reaser, chief economist at First Interstate Bank in Los
Angeles. "It was a fairly broad-based decline." The only recent
uptick in the index was a 0.1% rise in July. In both June and Au-
gust it fell 0.3%. The August decline was originally reported to
be 0.2%.  Yesterday's report conflicts with other recent govern-
ment reports that were far more optimistic. Last week, the Com-
merce Department reported the nation's gross domestic product
grew a surprisingly strong 2.7% in the third quarter.  And on
Monday, the National Association Of Purchasing Management said
its index of industrial activity rebounded in October.  Most
economists predict the economy will grow between 2% and 2.7% next
year, and argue there is little Bush or Clinton can do to quickly
spur higher growth.  "The die has already been cast as far as
much of next year's economic course is concerned," said James
Solloway, chief economist at Argus Research in New York. Despite
the index's negative reading, Solloway said he believes the
economic recovery is "a good bit stronger" than many people be-
lieve.


Indicators Index Reveals Sluggish Economy


The index doesn't do a good job of foretelling where the economy
is going, Solloway said. It's a much better window onto the
present conditions.

Other economists also downplayed the index's negative outlook,
saying it is a poor predictor.  "I don't pay that much attention
to the index of leading indicators," said Irwin Kellner, chief
economist at Chemical Banking Corp. in New York. The index, he
said, "called a recession in 1988 (when there wasn't one) and
missed (forecasting) the 1990 recession. I just don't think the
index is very reliable." Still, Kellner said he was particularly
concerned by one component - consumer confidence. It fell 0.89%
in September after rising in August.

Lacking Confidence


Consumer spending accounts for almot two-thirds of the economic
activity in the U.S. Most economists believe there is growing
pent-up demand among consumers, but consumers will not spend if
they lack confidence.  "The fact that people are as depressed as
they are disturbs me. Consumer confidence is critical to what
happens to the economy," Kellner said. "I think people are more
depressed than they have a right to be." With the elections over,
people may be more optimistic. "Consumers are undoubtedly voting
their pocketbooks," he said. But "once the deed is done, people
will feel better." Analysts also said many of the components that
weighed on the index in September probably will rise in October.
For example, one negative component was initial claims for unem-
ployment insurance. But the next unemployment report, due Friday,
probably will show a drop in claims, analysts say.  The biggest
negative in the index was a 0.17% decline in the prices for raw
materials. This component of the index includes materials such as
cotton and scrap metal.  While the drop in commodity prices con-
tributed to the fall in the index, the lower prices should be
seen as a healthy sign for the economy, argued Marilyn#m#cq#m#
Schaja#m#cq#m#, a money-market economist with Donaldson, Lufkin &
Jenrette Securities Corp. The drop shows that "inflation is under
control" she said.  The economy won't be robust next year, she
predicted. "We're heading for slow growth, not much better than
2% to 2.5%." But, Schaja said, the index may be giving an impres-
sion that is too gloomy.

Negative Factors

Other negative factors in the index were fewer unfilled manufac-
turers' orders and a fall in orders for new plant and equipment.

The five components that added strength to the index were: slower
business delivery times, a sign that demand is picking up; an in-
crease in building permits; an increase in orders for consumer
goods; high stock prices and a rising money supply.  The various
changes left the index at a seasonally adjusted 148.2, up 2.2%
from a year ago.

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