Economic gauge takes sharp dive Nov. figures suggest lingering recession

January 01, 1992|By Los Angeles Times

WASHINGTON -- A key indicator of the nation's economic health slipped 0.3 percent in November, the Department of Commerce reported yesterday, reflecting a sharp decline in consumer confidence, an upswing in job losses and other signs of weakness.

The decline in the Index of Leading Economic Indicators was the second in three months and the largest since January, when it fell 0.6 percent in the midst of the Persian Gulf crisis.

The drop followed a 0.1 percent upturn in October and a 0.2 percent decline in September.

The index, a composite of 11 business indicators, is designed to predict future economic activity. A companion index that records the economy's current performance, also fell by a sharp 0.8 percent in November after dropping 0.2 percent in October.

In a second report released yesterday, the department said that new home sales across the United States were unchanged in November. Healthy increases in the South and West were offset by a large decline in the Northeast, the sector hardest hit by the recession.

November new home sales remained at October's seasonally adjusted annual rate of 520,000, which reflected a 3.8 percent increase over October.

Economists received the reports with shrugs of sour resignation, saying they provided further evidence that the recession would continue to hobble the economy at least until spring.

"Nobody is going to be surprised by this or draw any new conclusions," said Donald Straszheim of Merrill Lynch Capital Markets in New York.

"It means there is more bad news to come in the economy, which we'll be seeing in the next few months: more layoffs, more plant closings and the like," he added.

He predicted, however, that December's explosive stock market rally would help push the economic indicators index toward a pallid gain in December.

Mr. Straszheim, like many market economists, said he believed that the current mix of low interest rates, low inflation and election-year fiscal policies likely to be enacted by Congress and the White House would bring about a weak economic recovery by the second quarter of this year.

"This was in line with expectations," added Allen Sinai of the Boston Co., who has been among the most pessimistic of market economists during the lengthy recession, considered by some to be the longest since the 1930s.

"Two declines in the last three months is a recession indicator," he said. "It shows recession now and continuing into the first quarter."

But Mr. Sinai predicted that recovery by spring or summer was a virtual certainty, saying: "1992 will be better than 1991 for sure.

"Recovery is very, very likely by spring or by the second half of the year. . . . But how much it will recover, and how long it can be sustained are future issues."

David Wyss of DRI-McGraw Hill, Lexington, Mass., pointed out that the leading indicators, which had climbed steadily from February through July, have been virtually flat or declining slightly since then.

"That about coincides with what we've seen in the economy, and don't look for much improvement," he said. Mr. Wyss said that his forecasting company foresees continued stagnation through the first quarter of 1992, with slow recovery thereafter.

But while the 0.3 percent drop in November was the largest one-month decline since January, virtually all of it could be explained by a big decline in consumer confidence -- a monthly thermometer reading that plunged in October and November but was reported Monday by the Conference Board in New York to have bottomed out in December.

"The entire drop in November leading indicators was accounted for by consumer expectations," Mr. Wyss said. "Without that it would have been flat."

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