The government’s sensitive index of leading indicators rose a strong 1% in June, the best improvement since January, after hardly moving in May, government economists said today.
The increase was based primarily on a surge in new businesses and an expansion in the money supply, which sometimes stimulates business several months after it occurs.
But the 1% gain fell short of being a positive signal that the economic slowdown is ending because it followed two exceptionally weak months.
Revised figures showed that May’s index inched up only 0.1% instead of the 0.7% reported last month. April’s index dropped 0.5%.
‘Can Grow . . . Stronger’
Most of the strength in June’s index was drawn from those indicators whose effect on the future economy is most indirect. After business formations, money supply and stock prices, the three remaining positive indicators all budged less than 0.1%.
“This ringing economic news on the future bodes well for renewed growth and continued expansion in the last half of 1985,” said White House spokesman Larry Speakes. He said the recovery “can grow even stronger” if Congress--at an impasse with President Reagan over the budget--cuts federal spending “substantially” over the next three years.
The positive indicators in today’s report were an improvement in the length of the average workweek, orders for factory equipment and a change in raw materials prices.
Three indicators that were negative, however, have the strongest impact on the near future. They were a drop in orders for consumer goods, an increase in new claims for jobless benefits and a decline in building permits.
Even with the strong June increase, the composite index of economic indicators edged up only 0.1% in the second quarter, far less than the 1.6% of the first quarter.
“At first glance, the 1% gain in June implies a revived recovery,” private economist John Albertine said. “On second glance, the massive revision of the May increase . . . extinguishes most of the optimism that the June figure would normally generate.”
An accompanying index showing the state of the current economy, not the trend for the future, confirmed that the economy at present is almost motionless. The index of coincident indicators went up only 0.1% after a revised 0.3% decline in May.
The coincident indicators are the bedrock measures of current employment, income, production and sales.