The economic recovery appears to have lost some of its steam in February and March, but the Commerce Department reported yesterday that the index of leading indicators continued to rise strongly, suggesting the recovery will not be aborted.
The leading indicators increased 1.4 percent in February, down from January's unusually large 3.5 percent rise but still the sixth consecutive monthly gain, the department said. The index usually foreshadows changes in economic activity.
However, the separate index of coincident indicators, which normally turn up and down simultaneously with the economy rather than preceeding it, fell 0.2 percent in February after a 1.1 percent increase in January. The decline was due to a drop last month in the number of employes on nonfarm payrolls.
Separately, the department said that new orders for factory goods fell 2.2 percent in February to a seasonally adjusted level of $156.76 billion. New orders had risen 3.9 percent in December and 2.5 percent in January, primarily on the strength of record-high levels of defense orders.
Jerry Jasinowski, chief economist for the National Association of Manufacturers, said the rise in the leading indicators last month "confirms the emergence of a recovery. The recovery is, however, likely to be weaker than normal and growth rates may be rather erratic."
Jasinowski noted that of the seven indicators in the index that rose last month, a measure of the money supply adjusted for inflation contributed the most to the increase in the index. That measure, he said, "has been distorted by technical factors," such as the shift of funds into the new money market deposit accounts.
A decline in the length of the average workweek in February for production workers in manufacturing was the biggest negative factor in the index. Jasinowski said that drop "suggests that unemployment may rise again during the next few months."
The employment and unemployment figures for March will be released Friday. Most analysts expect them to give a better reading on the current state of the recovery since they have not been distorted by unusual weather, as were the numbers for both January and February.
Industrial production, however, may have fallen in March because of the decline in automobile production, analysts say. Initial claims for unemployment benefits have also been running higher in March than their average 478,000 a week in February.
Initial figures for the gross national product showed it rising at a 4 percent annual rate in the first quarter, after adjustment for inflation. But to some extent that reflected gains late in the fourth quarter and in January. Now forecasters are divided on how strong they expect the second quarter and the second half of the year to be.
Some forecasters believe the second-quarter increase in real GNP will be as large as in the first quarter and possibly much stronger. Others think the rise will be no more than 1 or 2 percent.
Commerce Secretary Malcolm Baldrige declared yesterday, "The leading index for February was good news again for the economy."
While not disagreeing, some analysts in his department, however, pointed to the drop in the coincident index as an indication that the recovery was not all that rapid. Baldrige said the coincident index "slipped back last month because of a decline in employment affected by the weather."
Among the more optimistic economists was Donald Straszheim of Wharton Econometric Forecasters, who also called the February increase in the leading indicators "a distinctly good number, and there are more good ones to come.
Of the 10 components of the leading index now available, only the workweek fell substantially. Besides the money supply, two other components rose strongly. They were the change in sensitive materials prices, which contributed 0.5 percentage point to index increase, and net business formation, which added 0.4 percentage point.
The report on new factory orders showed that orders for nondurable goods, such as clothing, gasoline and the like, fell 1.1 percent to a level of $78.4 billion following a 0.5 percent drop in January.
Durable goods orders went down 3.2 percent to $78.36 billion after a 5.7 percent rise the month before, primarily on the strength of defense orders. New orders for non-defense capital goods--long-lasting items bought by business, such as machine tools--fell 7.2 percent to $19 billion. Such orders had increased 1.5 percent in January.
Factory inventories shrank 0.2 percent in February after 1.2 percent drop in January. Shipments of goods fell 0.4 percent following a 2.5 percent increase the month before.
Economists have said that much of the impetus for production increases this quarter has been a desire by business to halt the decline in its inventories. But once production is back in line with current sales, they caution, it will take an increase in buying to generate additional production and employment gains.