WASHINGTON -- The government index devised to forecast the economy fell 0.3 percent in December, its second straight decline, and now stands at the lowest level since June, the Commerce Department reported yesterday.
The results for last month were somewhat worse than expected, resulting in a negative reading for the fourth quarter, further dampening hopes for early economic revival.
"The decline in the leading indicators is consistent with other evidence pointing to an extremely weak first quarter, with real growth in the range of 1 percent," said Gordon Richards, an economist for the National Association of Manufacturers.
The Index of Leading Economic Indicators has been often criticized and periodically revamped over the years, most recently for failing to give any notice of the recession that has TTC now been determined to have started in July 1990.
But a Cornell University researcher contended yesterday that a negative bias in initial reports of the index caused the gauge itself to become an important contributor to the onset of the recession in the summer of 1990.
Michael Waldman said that beginning in January 1989, there were eight straight months in which the index was initially too low -- that is, subsequent revisions showed stronger numbers.
Partly because of these low initial figures, he said, professional forecasters, business executives and ultimately consumers became progressively pessimistic, causing economic activity to slow.
Since July, the index has now posted only one gain, a meager 0.1 percent in October. The index is intended to spot turns in the economy several months ahead.
Analysts at C.J. Lawrence, a Wall Street firm, said that five straight months without a significant rise served as "a sign the economy is unlikely to recover before midyear."
Six of 11 index components contributed to the December decline, led by plunges in contracts and orders for plant and equipment, and new factory orders for consumer goods and materials.
In addition to the sharply lower figure on new orders reported yesterday, the December reading showed falling backlogs of factory orders, fewer companies experiencing slower deliveries from suppliers, a decline in the M-2 money supply and lower consumer expectations as gauged by the University of Michigan.
A private-sector forecasting index compiled by Safian Investment Research eased 0.2 percent in December, with nine components up, 12 down and two unchanged. The labor-market and consumer-attitude factors now show a clear "double dip," said Kenneth Safian, proprietor of the White Plains, N.Y., firm.