Index's surge viewed as dated Reports of sluggishness called more indicative

August 06, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

An index of future economic activity rose to a record high in June, but analysts dismissed the report yesterday as stale news that already has been eclipsed by subsequent developments.

The Conference Board said that its Index of Leading Economic Indicators rose 0.5 point in June to 102.9, the highest ever under the index's current formula, which is changed periodically. That follows a rise of 0.2 point in May and 0.3 in April.

The index is designed to forecast economic action six to nine months in advance. But continuing doubts about its accuracy, combined with more-recent gauges suggesting economic slowing, prompted analysts to caution against drawing too many conclusions from yesterday's report.

The index "tends to be a rehash of old news," said Brian Horrigan, senior economist with Loomis Sayles & Co. in Boston. "All it is is a weighted average of a series of numbers that have already been released. Here we are in August, and we're talking about June numbers. You may have changed your outlook on the economy."

Two reports last week certainly changed the outlook of

Wall Street, which had been expecting continued robust growth. The National Association of Purchasing Management said its index of business buying fell sharply for July, and the Labor Department said that unemployment crept up and hiring slowed in the same month.

With both reports showing recent economic sluggishness and easing of inflationary pressures, stock and bond markets soared last week. Yesterday, the markets barely moved, suggesting that investors deem the July data more relevant.

Still, the leading index did portray a prosperous June. Of its 11 components, six rose for the month. The largest increases were due to changes in commodities prices, retail performance, consumer expectations and money supply.

Components that declined included unfilled durable-goods orders and plant and equipment orders.

But a good June doesn't necessarily mean a good December, say economist skeptics. They dispute the notion that the index is an accurate forecast device, saying that several components have little predictive power and should be tossed out.

"None of the financial indicators -- money supply, commodity prices, stock market -- have been any good in forecasting real activity," said Michael Conte, director of the Regional Economic Studies Institute at Towson State University.

"Not only are these things in there when they shouldn't be, but they're heavily weighted."

Pub Date: 8/06/96

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.