Key Economic Indicators Up 0.7% in Month

WASHINGTON —  The government’s key gauge of future economic activity recorded another rise in February, the Commerce Department reported Friday, encouraging some analysts to predict that the economy will improve in the next few months.

The index of leading economic indicators, considered a useful but often unreliable barometer of turning points in the economic climate, increased by a moderate 0.7% last month. By comparison, the index spurted by 1.5% in January after falling in December.

The rise reported Friday “was a good sign,” said Robert Gough, an economist at Data Resources Inc., a forecasting firm based in Lexington, Mass. “It’s certainly an indication that the expansion is continuing at a moderate pace.”

Poor Economic Reports

But several economists, pointing to a string of generally poor economic reports during the last several weeks, warned that sluggish growth may continue at least through the second quarter of the year, which runs from April through June.

“Right now, the data look terrible,” said David Levine, chief economist at Sanford C. Bernstein & Co., a Wall Street investment firm. “Consumer spending continues strong, but capital spending (over the last several months) has been flat, housing was flat and imports continue to soak up a lot of final demand. I don’t expect to see a big improvement in the economy until the third quarter, and the pickup may be delayed even into the fourth (quarter).”

The leading indicators report was called a “mixed bag” by Edward Friedman, an economist at Chase Econometrics, a forecasting firm based near Philadelphia. “The economy is not as strong as it appears to be,” he said.

But Commerce Secretary Malcolm Baldrige said that the new report signals “better performances (for the economy) in the period ahead.” He said he is “particularly encouraged” by a big turnaround in orders for new plant and equipment--up 48%--a “sign that capital spending this year will again be a driving force in the economic expansion.”

Separately, the government reported that sales of single-family homes rose a strong 6.2% in February after a 0.5% decline in January. The increase, which put sales at a seasonally adjusted annual rate of 638,000 units, pointed to an improvement in the housing industry in the months ahead in response to moderating interest rates.

The leading indicators report was issued a week after the Commerce Department released its initial “flash” forecast of economic growth for the current quarter, which ends Sunday. According to that forecast, which is subject to revisions in the months ahead, the economy expanded at a weak 2.1% annual rate during the first three months of the year.

Economic growth has been generally sluggish since last summer, when the gross national product rose by just 1.6% during the July-September period, followed by a 4.3% improvement in the fourth quarter that was largely attributed to increased domestic purchases because of a temporary drop in imports.

Few Expect Recession

Despite the slowdown, few economists expect a recession this year. With inflation remaining moderate and consumer spending running strong, there is little reason to expect the economy to run out of steam.

“The growing capacity of the economy increases our ability to produce and compete in world markets in a non-inflationary environment,” said Richard Rahn, chief economist of the U.S. Chamber of Commerce. Rahn predicted that growth will rebound in the second quarter to an annual rate of about 5% and that overall economic gains will average about 4% for 1985.

The index of leading indicators is composed of 12 statistical measures designed to predict economic activity. Of the 10 measures available for February in the initial report Friday, five rose and five declined.

Favorable Indicators

On the plus side, new orders for plant and equipment, stock prices and the money supply contributed most to the upturn. At the same time, new business formations continued to rise. And deliveries of supplies slowed, indicating that some businesses are having more trouble keeping up with their new orders.

On the down side, the average workweek of manufacturing workers fell for the second straight month, initial claims for unemployment benefits rose by 20,000 and new orders for consumer goods fell after a strong upturn in January. In addition, building permits dropped in February and sensitive materials prices showed further signs of weakness.

The changes left the index at 167.5, compared to its 1967 base of 100.