Key Indicators Head Up 1st Time in 3 Months

The government said Friday that its chief economic forecasting gauge turned up in July for the first time in three months, posting a modest 0.2% gain, which many economists interpreted as further evidence that there is no recession on the horizon.

The Commerce Department said the gain in the index of leading economic indicators followed no increase at all in June and a steep 1.3% drop in May, the biggest decline since late 1987. The index had risen 0.6% in April.

The overall index stood at 144.0% of its 1982 base of 100.

The government initially reported a month ago that the index had fallen in June as well, marking the fourth time in five months that the index had fallen.

At the time the June report came out, many analysts were convinced that the economy was on the verge of a recession. However, since that time a variety of government statistics have been revised to show more strength than previously believed.

These revisions have sent economists scurrying to scrap their own recession forecasts in favor of predictions calling for the economy to experience a slowdown in the second half of the year but come nowhere close to toppling into a recession.

The Commerce Department also reported Friday that construction spending recorded a slight increase in July as strength in non-residential building offset weakness in housing and government projects.

The department said spending rose a tiny 0.02%, a gain of $100 million, putting the seasonally adjusted annual rate at $415.7 billion in July.

On the other hand, one report Friday did hint at sluggishness in the economy. A survey by the National Assn. of Purchasing Management indicated that the U.S. economy declined for the fourth straight month during August to the lowest level of growth since late 1982.

Allen Sinai, chief economist of Boston Co., said the leading indicators, the good employment report in August and a string of other government statistics in the past month showed that “not only is there no imminent recession, there isn’t even a slowdown.”

He predicted that overall economic growth, as measured by the gross national product, could advance at a rapid clip of between 3% and 3.5% in the current July-September quarter.

That would be substantially faster than the 2.7% GNP growth rate from April through June. But Sinai predicted that growth would slow in the final three months of the year, reflecting an expected dip in auto sales after the flurry of model-year ending discount incentives offered in July and August.

Michael Evans, head of a Washington forecasting firm, said he expected growth in the final half of the year would average 2.2%. While that would be down a percentage point from the first-half growth rate, it would be enough to reach the Bush Administration’s goal of 2.9% growth for all of 1989.

“We are going to have a fine year for the economy,” Evans said. “Inflation started out badly, but it has calmed down, and now you would have to look pretty hard to find something you didn’t like about this year.”

Analysts believe that with inflationary pressures easing because of a moderate slowdown in growth, the Federal Reserve Board has been able to achieve the so-called soft landing it was seeking.

In July, five of the 11 leading indicators showed strength.