Economic index rises only slightly But some analysts detect signs of better times ahead

August 04, 1993|By New York Times News Service

The government's main forecasting gauge barely inched up in June, and its decline in May was slightly larger than had originally been estimated, the Commerce Department reported yesterday.

The index of leading economic indicators, which is supposed to offer a six-to-nine-month look ahead at the economy, rose a scant 0.1 percent in June. The decline in May was 0.4 percent, not the 0.3 percent originally reported.

The gain in the index was less than expected; many forecasters predicted a gain of 0.2 percent or 0.3 percent.

Investors viewed the report as another sign that the economy would remain relatively weak in the second half of the year, so they bought bonds and sold stocks and dollars. The yield on the 30-year Treasury bond ended at 6.52 percent, a 16-year low, after having dropped as low as 6.51 percent earlier in the day.

But some economists, though acknowledging that the economy is growing at a modest pace, said other recent data suggest more momentum than the index of leading indicators seemed to reflect.

"Growth won't be robust, but it should be in the 2.5-percent-to-3.0-percent range or even higher" for the second half of 1993, said David Mullins, vice chairman at the Federal Reserve Board. Growth in the first half of the year averaged 1.2 percent.

The index, a compilation of 11 forward-looking indicators of economic activity, from consumer expectations to new building permits, was slightly lower in June than it was last December but still well above where it was for most of last year.

Six of the components rose; five fell. A drop in first-time unemployment claims, higher stock prices and a big jump in orders for equipment and contracts for business construction helped push the index up slightly.

At the same time, however, factory orders for long-lasting goods, a portent of future production, declined, and the time it takes businesses to fill orders, a sign of how busy factories are, shrank.

Most economists caution that the leading indicators are of limited use.

"The index really tells us June was a sluggish month, which we already knew," said Bruce Steinberg, chief economist at Merrill Lynch. "But it doesn't tell us much about how the rest of the year will develop."

The economy, he said, has been doing better than it looks on the surface. Consumers and businesses, despite their sour moods, spent briskly in the spring. The main reason the economy grew at a sluggish 1.7 percent annual rate was that business cut inventory growth sharply.

What's more, auto production is slated to rise sharply this month, and that could lift sales for businesses that supply Detroit. And construction spending, which sagged in the spring, may turn up. Builders started enough projects in the past three months to lead to sizable gains in construction outlays in the third quarter. In addition, mortgage applications, a forward-looking indicator of homebuilding, jumped in July.

"The economy is going to look stronger in the second half than in the first half, even though the leading indicators aren't alerting us to that possibility" Mr. Steinberg said.

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