Economic Indicators Up Sharply : But U.S. Also Reports Second-Largest Trade Deficit in Its History

The government’s main forecasting barometer of future economic activity rose sharply in May, but in less positive news, the government also reported today that the nation suffered its second-largest trade deficit in history.

The Commerce Department said its index of leading indicators climbed a solid 0.7% last month, reversing two months of declines. The index, made up of a dozen forward-looking business statistics, is supposed to foretell the course of the economy six to nine months in the future.

Despite today’s increase, the index has been giving decidedly weak signals in recent months. In revisions today, the government said the index dropped 0.1% in March and 0.6% in April.

3rd Might Have Been Signal

If the May number had also been negative, it would have meant that the index had dropped for three straight months--often a signal in the past of an impending recession.

Even with the strong May gain, the index has declined six months out of the last 12, showing how sluggish the economy has been in the last year.

A key reason for the weak performance has been the country’s deteriorating trade performance. The nation’s manufacturing sector has been hard hit as U.S. industries have seen sales evaporate under an onslaught of foreign competition.

That problem grew worse in May, the government reported, as the nation suffered a $12.7-billion merchandise trade deficit--the difference between the value of imports and that of U.S. exports.

Record Set Last July

It was the largest deficit since a record $13.8-billion imbalance last July.

The deterioration in May came from a 1.5% increase in imports, which left them at $30.1 billion, also the second-highest total on record. Exports fell an even sharper 2.1% last month to $17.4 billion, their lowest level since February, 1984.

The nation’s trading problems have been blamed primarily on the high value of the dollar, which makes imports cheaper and more attractive to U.S. consumers while making American goods more expensive and harder to sell on overseas markets.

In May, declines in exports of agricultural products, automobiles and power-generating equipment offset increases in sales of aircraft, electric machinery, chemicals and coal.

Commerce Secretary Malcolm Baldridge predicted the deficit for 1985 will be about $145 billion, far ahead of last year’s record deficit of $123.3 billion.