Leading index gains 1.9% in Dec. Rising home sales also bode growth

February 03, 1993|By New York Times News Service

WASHINGTON -- The government's Index of Leading Economic Indicators soared 1.9 percent in December, its third straight advance and the brightest forecast for growth in nearly 10 years, the Commerce Department reported yesterday.

At the same time, the department found that sales of new single-family homes climbed 6.3 percent for the month, a gain even bigger than it appeared because of a sharp upward revision for sales in November.

Analysts said the figures represented further confirmation that the U.S. economy was expanding solidly, lacking only strong job gains to put an end to doubts about robust expansion for 1993.

"That the United States economy is beyond the recovery stage and in the nascent phase of an expansion seems clear," said John R. Williams, an economist for Bankers Trust Co., in the bank's current market letter. "Practically every piece of data, with the exception of some labor market news, is increasingly upbeat."

Ordinarily, such robust expansion would leave little reason to embark on the kind of economic stimulus that President Clinton is planning. But the discouraging reports on employment make this an unusual recovery.

Friday, the Labor Department is expected to report an expansion in payrolls for January but at less than half the pace enjoyed during comparable previous expansions.

Yesterday's reports came as the Federal Reserve began a two-day meeting to set its strategy for the year on interest rates and the money supply, which it will outline before Congress at midmonth. But the government figures announced yesterday were largely as anticipated, so they were not expected to cause significant change in either the Federal Reserve's stance or that of the Clinton administration.

Mr. Clinton is continuing to fashion a plan for short-term economic stimulus, which by latest account seems likely to total about $30 billion in additional deficit spending, including outlays for roads and bridges and incentives for business to invest in new equipment.

Despite the succession of encouraging statistics on the economy, which included last week's report that total output of goods and services swelled at a 3.8 percent annual pace during the final three months of 1992, most analysts expect at least some slackening in late winter and spring.

This not only reflects lagging job growth but a likely pause by consumers who spent heavily during the holiday season and who will be receiving smaller tax refunds as a result of the Bush administration's effort to spur activity by reducing the tax withheld from paychecks.

Moreover, consumer confidence has stopped rebounding of late and the spur provided by rebuilding in Florida, Louisiana and Hawaii after hurricanes is on the wane.

The 1.9 percent jump in the Index of Leading Economic Indicators was the biggest since April 1983, when the economy was rebounding from the severe recession of 1981-1982. The first four months that year the index posted increases averaging just over 2 percent.

Moreover, the December jump was broadly based, with nine of (( the 11 components contributing to the gain and only two holding it back.

The biggest gain was a rebound in the University of Michigan's survey of consumer expectations, which rose sharply in November and December but has since eased.

Sizable positive contributions also resulted from a smaller number of first-time claims for jobless benefits, higher orders by manufacturers for consumer goods and materials, a rise in contracts and orders for plant and equipment, a rise in unfilled orders for durable goods and higher levels of building permits and stock-market prices.

Small increases came from a longer average workweek and from more companies reporting slower deliveries from suppliers.

The two negative components were a decline in the inflation-adjusted money supply and lower prices for materials particularly sensitive to the business cycle. The money supply now seems to be expanding, however, and materials prices have been held down partly by large-scale unloading on world markets of Russian minerals.

Yesterday's housing figures showed new homes sold at a seasonally adjusted annual rate of 656,000 in December, 6.3 percent ahead of the 617,000 pace the month before. Initially, the November sales rate had been estimated at 565,000.

David Seiders, economist for the National Association of Home Builders, said he was pleased with the December results, declaring activity to be "on a firm footing."

For 1992 as a whole, sales rose to 608,000, or 19.4 percent above the 1991 level as mortgage rates fell and the median price of new homes was virtually unchanged, at $120,100.

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