Slight Slowing of Economy Discounted as Danger Sign

The government’s main gauge of future economic activity dipped slightly in December, but the Reagan Adminstration and private economists discounted the decline and maintained that the economy is poised for above-average growth in the months ahead.

Factory orders also declined last month, the government reported today, while sales of new homes ended 1984 at the highest level in five years.

The Commerce Department said its index of leading economic indicators, the government’s main economic gauge, fell 0.2% in December and did not rise as sharply in November as first reported. November’s gain was revised to 0.6% from the 1.3% spurt reported a month ago.

The department revised a small 0.1% August increase to a 0.1% decline.

This revision meant the index dropped for three straight months last year, from June through August. Three consecutive declines in the past have sometimes, but not always, signaled the start of a new recession within nine months.

However, many economists discounted the significance of the declines, saying the weak index was running counter to other signals that the economy rebounded strongly in the closing months of 1984.

At the White House, presidential spokesman Larry Speakes said the dip last month “does not cause us any concern at all. The economy remains exceptionally strong.”

Private economists agreed, saying they saw no reason to revise forecasts expecting strong growth of between 4% and 5% this year.

“This doesn’t shake my view that we have a firm rebound in process for the economy,” said Allen Sinai, chief economist for Shearson Lehman-American Express. “The classical signs of a recession are not there.”

Mike Evans, head of a Washington forecasting firm, predicted that the index will rebound a strong 2% in January, based on information already known about big gains in the stock market and in the nation’s money supply.

The index of 12 different economic indexes is designed to point to turning points in the economy rather than indicate strength. A steady shift in the index from increases to decreases would be viewed as an indicator of an economic downturn ahead.

The government’s report for December said 11 indicators were available and that gains in six of those indexes were not large enough to offset the decline in the other five. The decline was led by a slump in new contracts and orders for plant and equipment and a drop in the formation of new businesses.

Other negative factors were a decline in business formation, the time lag businesses have in getting shipments from their suppliers, a drop in stock prices in December and a decline in building permits.

In separate reports, the government said sales of new homes rose 3.1% in December and that orders to factories for manufactured goods fell 0.7% last month.

For all of 1984, sales of new homes rose 2.6% to 639,000.