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Economic Index Signals Slower Growth This Year

The government’s economic forecasting gauge is pointing to a slowing economy this year, while shrinking factory orders indicate the robust manufacturing sector may join the trend.

The Commerce Department said Friday its Index of Leading Economic Indicators, designed to forecast economic conditions six to nine months in advance, was flat in January.

In a separate report, the department said orders to U.S. factories rose 0.6 percent in January. While growth was relatively strong, it was slower than the gains of 2.7 percent in November and 2 percent in December.

After remaining unchanged in September, the leading indicators fell 0.1 percent in October and then edged up just 0.1 percent in November and 0.2 percent in December.

“The … (index) actually has been weak for several months,” said economist Michael Evans, head of the Evans Group in Boca Raton, Fla. “The fact that it didn’t rise in January is another sign the economy is slowing down.”

Economist Mark Zandi of Regional Financial Associates in West Chester, Pa., agreed, saying the index “is showing that the slowing in the economy will continue at least through the summer.”

Neither, however, expected the economy would fall into recession.

The Federal Reserve has been trying for a year to curb economic growth and avoid any inflationary spiral, raising short-term interest rates from 3 percent to 6 percent.

Effects of the boosts have been seen recently in the slower pace of retail sales, particularly more expensive durable goods that often are bought with loans, and declining housing starts and sales of previously owned homes.

Five of the 11 forward-looking economic indicators rose in January, five fell and one was unchanged.

The positive components, listed according to their impact, included higher orders for plants and equipment, an increase in unfilled orders for durable goods, higher stock prices and an increase in the money supply.

The negative indicators included a decline in building permits, faster delivery times that suggested declining orders, higher weekly initial claims for unemployment insurance and a drop in an index measuring consumer confidence.

But while new orders for consumer goods edged up and prices for raw materials dipped slightly, the report said their contributions to the index rounded to zero. The average work week was unchanged.

The Commerce Department said factory orders, considered a key gauge of the nation’s manufacturing sector, totaled a seasonally adjusted $301.3 billion. That was up from $299.5 billion in December, but the smallest increase in three months.

“There is some sign the manufacturing base is slowing, but it’s coming off a very, very high level of activity,” Zandi noted. “It was operating at a very torrid pace in 1994.”

Orders for durable goods, items expected to last more than three years, rose a revised 1.1 percent, down from 1.9 percent in December. But orders for non-durable goods such as food and fuel were unchanged.

The backlog of unfilled orders rose 0.9 percent, up from 0.8 percent in December and 0.6 percent in November.

Tags: business

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