Economic Indicators Show No Signs of Recovery

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By Carl T. Hall San Francisco Chronicle With the notable exception of rising stock prices, most of the standard signals of an improving economy have yet to show up as layoffs spread and the ground war begins.

Construction and real estate, consumer confidence, durable-goods manufacturing, employment and a host of other so-called leading indicators haven't corroborated the bullish message from Wall Street.

Many experts say a successful end to the gulf war is a key ingredient in a recovery scenario. For now, about the best interpretation that can be drawn from the latest economic evidence is that, while the economy doesn't appear to be getting any better, it's not getting a whole lot worse, either.

``At least there's not a continuing free-fall,'' said David Cohen, an economist at MMS International, the McGraw Hill financial-services subsidiary based in Belmont. ``But a resolution of the Mideast conflict will probably be necessary before we see any real rebound.''

Even so, the stampede into equities has fueled legitimate hopes for a summer recovery. Stock prices often rally a few months before the end of a downturn, when investors, sensing a recovery, try to beat one another to the bargains.

Recessions last 11 months on average. If this one is dated as beginning in August - as most experts believe - then a January stock-market rally would be right in line with the usual pattern if recovery comes about June or July.

The U.S. Commerce Department lumps stock prices and 10 other so-called leading indicators into a single composite index, which is put through a statistical adjustment designed to smooth out inconsistencies in the data.

The theory is that while any indicator can emit a false signal, most won't err at the same time, nor in the same direction. Thus, the composite index, at least in theory, tends to be more accurate than any of its parts.

The index rose a negligible 0.1 percent in December, according to the Commerce Department's preliminary estimate, after declining sharply for four months. A survey of 30 economists by MMS suggests an additional 0.4 percent decline occurred in January. There's also a distinct chance December's figure will be revised downward.

``The stock market is taking a great deal on faith,'' said Lacy Hunt, chief U.S. economist at HongkongBank group in New York.

Here's a closer look at some other classic early signals of economic recovery:

- Faster growth in the nation's money supply.

When the Federal Reserve reduces interest rates, it's supposed to generate additional bank lending, which in turn leads to increased business investment and consumer spending. Even before the economy picks up, an easier credit policy should show up as an increase in the nation's money supply.

The Fed began to aggressively ease interest rates in December. So far, there's been little impact on the most closely followed money-supply measure, known as M2, which includes cash in circulation, checking accounts, savings deposits and money-market mutual funds.

For the 13-week period ended Feb. 11, M2 grew at an annual rate of only 1.3 percent over the previous period. During the past year, M2 has grown 3.3 percent, near the bottom of the Fed's target range of 3 percent to 7 percent.

To revive the economy, growth in the money supply has to exceed inflation. But the latest figures - including a Labor Department report last week showing consumer prices rose a higher-than-expected 0.4 percent in January - suggests this hasn't happened yet.

Fed interest-rate policy typically takes at least six months to spur economic growth. Many experts predict a longer lag this time. Even though interest rates are down, banks are said to be less willing to extend credit in the aftermath of the S&L debacle and the drop in commercial real estate. …