Key economic barometer posts worst dip in 3 years

September 29, 1990|By New York Times News Service

WASHINGTON -- The government index designed to predict turns in the economy dropped 1.2 percent last month, the biggest fall since just after the 1987 stock market crash, the Commerce Department reported yesterday.

Though the decline in the measure, the Commerce Department's Index of Leading Economic Indicators, was not significantly bigger than generally expected, most analysts took it as further evidence that the economy was veering into recession or might already be there.

"Beginning in the fourth quarter, the real gross national product will fall," said Lawrence A. Hunter, deputy chief economist for the U.S. Chamber of Commerce.

But a sizable minority still found reason to contend that a downturn can be avoided, a position that seemed to be supported by the National Bureau of Economic Research, which calculated that chances of a general recession beginning before February are just 3 percent, the same probability it found in July.

In addition, the Conference Board reported this week that consumer confidence, which plunged last month, remained unchanged thismonth and that consumer expectations rebounded slightly. Consumer psychology is considered a crucial indicator, since consumers account for two-thirds of the economy, or $3.6 trillion of the annual GNP of $5.4 trillion.

Edward Yardeni, chief economist at Prudential-Bache Securities Inc., said he remained skeptical about a recession but that the economy was doing no better than moving "sideways" now and would probably continue to show no growth for the balance of the year.

Seven of the 11 components of the leading indicators index contributed to the August decline, the biggest factors being a drop in consumer expectations and stock prices, both related to the Persian Gulf crisis.

The other negatives were declines in contracts and orders for plant and equipment, building permits, the M-2 money supply and manufacturers' unfilled orders, and a rise in initial claims for state unemployment insurance.

Four components made positive contributions, but two of them analysts said, should not be regarded as favorable developments. A rise in the length of the workweek may be showing that employers are working existing employees longer to avoid hiring new workers, and a rise in prices of sensitive materials mainly reflected the surge in oil prices.

The index is regarded as having become quite unreliable ove the last decade, and some economists think that efforts to improve it, by adding such new elements as the University of Michigan's survey of consumer expectations, have helped little.

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