Economic Index Down; Home Sales Plunge 12%

The government today reported a decline in its main economic forecasting thermometer coupled with plunging new home sales, reaffirming analysts’ projections that any major turnaround in a lukewarm U.S. economy is still months away.

The Commerce Department said its index of leading indicators decreased 0.2% in April, marking the first decline this year and signaling that the lagging economy has yet to feel the effect of lower interest rates.

In a separate report, the department said sales of single-family homes fell 12% last month, putting sales for the first four months of this year 4% below what they were at this time in 1984.

The March-to-April decline was the sharpest since a 12.5% drop between December, 1983, and January, 1984.

In Line With Expectations

The report on the index of leading indicators was generally in line with the expectations of market analysts, although they had been split over whether the index would move up slightly or down slightly.

Interest rates have been driven lower in recent weeks, first by reduced demand for credit as businesses scaled back their activity and then by the Federal Reserve’s lowering of its discount rate to stimulate an economy that grew at a sluggish 0.7% annual rate in the first quarter.

However, government and private analysts have emphasized that it will take at least a couple of months for lower interest rates to start showing up in even the most interest-sensitive sectors of the economy.

Building permits, for example, were among the six indicators down in today’s report.

In order of their impact, the negative factors in the April index were contracts and orders for plant and equipment, money supply, vendor performance, average workweek, building permits and net business formation.

Report ‘Disappointing’

The four indicators making positive contributions were new orders for consumer goods and materials, change in sensitive materials’ prices, stock prices and average weekly initial claims for state unemployment insurance.

Commerce Secretary Malcolm Baldrige called the April report “disappointing.”

“Our economy has been in a temporary lull with much of the recent sluggishness reflecting a poor performance in goods-producing industries,” he said. But he noted several signs pointing to a pickup in the economy, among them increasing consumer spending and rising housing starts.

Reagan Administration officials have started to hedge their forecast of 4% economic growth this year in the face of a series of lackluster economic measures.