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0.1% Decline in Economic Index Seen as First in Series of Drops : Experts Think Wall Street Skid Means Slower Growth

October 30, 1987|Associated Press

WASHINGTON — The government's chief forecasting gauge of future economic activity slipped 0.1% in September, the first decline in eight months, the Commerce Department reported today.

Many economists believe the setback for the Index of Leading Indicators is just the first of what will be a series of declines caused by the collapse of the stock market.

These analysts believe the index is correctly signaling slower growth for next year, with some already predicting that the September drop will be the first of three consecutive monthly declines. Often in the past that has signaled an impending recession.

Workweek Hours

However, government analysts cautioned that much of the weakness in September came from a drop in the length of the average workweek. They said this decline was misleading because the survey of workweek hours was taken in the week covered by the Labor Day holiday, which depressed the results.

White House spokesman Marlin Fitzwater, pointing to the drop in the average workweek hours as the main reason for the decline in the index, said today: "The indicators still look pretty good. The stock market changes probably won't show up until the October index is out."

The workweek data was the biggest negative force on the index in September, followed by a decline in the stock market, reflected by a 3.2% September decline in the Standard & Poor's index of 500 stocks.

This weakness reflected the fact that stock prices were already headed lower in September, following record highs reached in August.

Analysts said the record collapse of the market in October is likely to have three times the negative impact on the October index as the September fall.

Without the drop in the average workweek and the fall in the stock market, the index would have posted a 0.7% increase last month.

Gains in July, August

The 0.1% September decline followed gains of 0.6% in August and 0.4% in July. The July figure represented an upward revision from an earlier estimate of 0.3%.

The 0.1% decline was the first drop since a 0.6% fall in January.

In addition to the drop in the length of the workweek and stock prices, two other indicators that contributed to the decline were changes in raw materials prices and a drop in plant and equipment orders.

Four of the nine available indicators were positive influences on the report. The biggest source of strength was a slowdown in business delivery times, indicating increased demand. Other positive forces on the index were a drop in weekly unemployment claims, a rise in manufacturers' orders for consumer goods and a jump in the money supply.

One indicator, building permits, showed no change in September.

In a separate report today, the Commerce Department said sales of new homes, hurt by a sharp jump in mortgage rates, fell 5.2% in September, the biggest decline in four months.

The department said new single-family homes were sold at a seasonally adjusted annual rate of 656,000 units last month following increases of 2.5% in August and 5.3% in July. The decline came as fixed-rate mortgages climbed above 11% for the first time since late 1985.

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