Economy gives new signs that recovery is at hand

June 01, 1991|By Robert D. Hershey Jr. | Robert D. Hershey Jr.,New York Times News Service

WASHINGTON -- Posting a third straight advance, the government's main economic forecasting gauge signaled yesterday that the 10-month-old recession would soon be over.

"The end is imminent," said Maury N. Harris, chief economist at Paine Webber Inc. "We're going to have a summer recovery."

Although practically no analysts expect a vigorous recovery, those who say the recession will end by midyear have formed a steadily larger consensus in recent weeks. Few now say that the recession will extend into the autumn and, in fact, historians may eventually determine that recovery is already under way.

The composite index of leading indicators climbed six-tenths of 1 percent in April, the Commerce Department reported yesterday, following increases of seven-tenths of 1 percent in March and 1.2 percent in February.

In another positive economic report yesterday, the Commerce Department said that orders received by U.S. factories rose in April for the first time in six months.

The two government reports helped propel the stock market to a record close, with the Dow Jones industrial average gaining 27.05

points, to 3,027.50.

Three straight advances in the leading indicators have almost invariably signaled imminent recovery during the postwar period. The only exceptions were in 1954 and 1961, when the advances were not as strong and the recovery was delayed for one or two quarters.

The leading index has a far less reliable record in forecasting recessions, having predicted many that have failed to occur and giving little or no notice on others. Four straight declines surrounding the October 1987 stock market crash were not followed by recession, and last year the leading index had gains for both May and June, just before the recession began.

Further buoying hopes yesterday, in addition to the figures on factory orders, was a report of a substantial jump in the industrial index compiled by Chicago purchasing managers.

Factory orders were foreshadowed by last week's positive statistics on durable goods, a subgroup of that index.

Yesterday's figures, asserted Marilyn Schaja, an economist at Donaldson, Lufkin & Jenrette, "clearly fit with the impression of .. the recession coming to its end."

Thursday, reports showed that sales of new homes and personal incomes both rose for the third month in a row, even though consumer spending dipped.

April's rise in the leading index was broad-based. Whereas in preceding months gains were concentrated in the index's financial and psychological components, "you've got the real stuff this time," Mr. Harris said.

Currency traders were also caught up in the wave of optimism and pushed the dollar higher against foreign currencies.

Of the six advancing components of the leading indicators' index, by far the biggest factor was an increase in new factory orders for consumer goods.

The others, ranked by their contribution, were a decline in average weekly initial claims for state unemployment insurance; a rise in the proportion of companies getting slower deliveries from suppliers; higher stock prices; a longer average workweek; and an increase in building permits.

Yesterday's report also showed that factories' new orders for consumer goods did not decline as much as initially estimated in March. This was the main reason the overall index for the month was revised to post a gain of seven-tenths of 1 percent instead of five-tenths of 1 percent.

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