Leading indicators climb 0.1%, suggesting continued expansion Nov. increase signals '98 will start soundly

January 01, 1998|By BLOOMBERG NEWS

WASHINGTON -- The U.S. economic indicators -- a composite index intended to project growth over the next half-year -- rose in November, the fifth consecutive advance and a sign that 1998 will start on sound footing.

The Conference Board reported yesterday that it's index climbed 0.1 percent in November after rising an unrevised 0.1 percent in October. Of the 10 previously released indicators, four made a positive contribution in November, with manufacturers' orders for capital goods accounting for the bulk of the gain. Commercial aircraft orders surged in November.

"The leading indicators point to a continuation of expansion through at least the early part of 1998," the Conference Board said. "There is little evidence of cyclical imbalances that would jeopardize the economy's stability."

In financial markets, the benchmark 30-year Treasury bond was up 5/8 , pushing its yield down almost 5 basis points to 5.92 percent, as investors anticipated growth with no inflation. Stocks were mixed in New York trading, with the Dow Jones Industrial Average falling 7.72 points, or 0.1 percent, to close at 7908.25 on the final day of the year. For all of 1997, the Dow advanced 22.6 percent.

Low unemployment and low inflation in the U.S. so far outweigh fallout from Asia's crippling currency crisis. "The economic fundamentals continue to look positive, and the chances of a recession in 1998 are minimal," according to a forecast by economists Mickey Levy and Peter Kretzmer at NationsBanc Montgomery Securities in New York.

Still, Asia is a wild card for the U.S. economy, with Wall Street analysts divided on how much the turmoil might hold back U.S. growth. "If anyone was looking for an immediate effect from Asia, it certainly isn't happening," said Jerry Zukowski, an economist at PaineWebber Inc. in New York.

And yet other reports yesterday suggested the economy will grow at a more subdued pace than in the final months of 1997, when it grew at an estimated rate of 3.5 percent to 4 percent.

The Chicago Purchasing Management Association's December manufacturing index, while remaining at a lofty level, dipped to 58.1 in December from 59.5 in November. Another manufacturing index, the APICS/Evans Economics Business Outlook also registered a weak reading for December.

Additionally, the Labor Department said first-time claims for state unemployment benefits rose 13,000 last week to a seasonally adjusted 318,000 after decreasing 15,000 the previous week to 305,000.

The leading index monitors a variety of economic gauges, including the recently added spread between the yield on the 10-year Treasury note and the federal funds rate. The difference between long- and short-term interest rates helps forecast coming changes in monetary policy.

The report no longer tracks the change in sensitive materials prices and unfilled factory orders.

Factory orders for capital goods carried the banner in November. Also contributing to November's overall rise: an increase in the money supply or capital available for spending and investment; a longer factory work week -- 55.6 hours in November vs. 54.7 hours in October; and a slower pace of deliveries, a sign of increased demand for manufactured products and materials.

"The manufacturing sector has very strong momentum going into 1998," said Mark Vitner, an economist at First Union Corp. in Charlotte, N.C.

Still, six indicators made a negative contribution to November's LEI. They were: an increase in average jobless claims for the month, about 319,000 in November, up from roughly 309,000 in October; a drop in building permits; weaker factory orders for consumer goods; lower stock prices; a narrower spread between short-term and long-term interest rates, a possible sign of slower growth; and tamer consumer expectations about the economy.

Pub Date: 1/01/98

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