Leading Economic Signs Up, Factory Orders Off Sharply : Trade Imbalance Declines 22% for Month of July

More mixed economic signals emerged today, with the government releasing July reports of a healthy rise in the nation’s main economic barometer and a 22% decline in the trade deficit but also disclosing the steepest slide in factory orders for manufactured goods in 10 months.

Meanwhile, the Reagan Administration lowered its estimate of the federal deficit for 1985 to $211.3 billion, down from the $213 billion it had foreseen in April, and held to its prediction that economic growth will accelerate vigorously for the remainder of the year.

The Commerce Department said a 0.4% rise in the Index of Leading Economic Indicators last month matched a revised gain for June. Although the increase in July was above the expectations of most private economists, the June rise was reduced from an earlier report of a robust 1% gain.

The department also said the nation’s merchandise trade gap narrowed to $10.5 billion in July, the lowest level since January.

Different Interpretations

Economists were split on how to read the reports on the leading indicators and the trade deficit.

The more optimistic forecasters said the steady improvement in the index of leading indicators and the sharp drop in the trade deficit are signs that the long-awaited rebound in economic activity is finally beginning to occur.

“The rebound is starting. It will be a couple of months before we begin to see it in employment and industrial production, but it will occur,” said Michael Evans, head of Evans Economics, a Washington forecasting firm.

Evans said he is particularly encouraged by the sharp drop in the trade deficit for July, saying he looks for further improvements in coming months as declines in the strength of the dollar slow imports to this country.

The Pessimistic View

Other economists, however, said the sharp July dip was a fluke brought about by a slump in oil shipments and was not pointing the way to any significant turnaround in the country’s trade problems.

“This is no sign of the long-awaited rebound in economic activity,” said Jerry Jasinowski, chief economist for the National Assn. of Manufacturers. “Real economic growth is limping along in the 1% to 2% range with no clear signs of a revival at this point.”

The big July improvement in trade stemmed from a 19.3% drop in imported oil shipments and a 20.3% decline in imports of Japanese autos.

For the first seven months of the year, however, the trade deficit totaled $81.2 billion, or 10% higher than in the same period a year ago, when the trade imbalance was growing to a record height.

Military Hardware Decline

The department said orders received by factories fell 1.3% in July after a rise of 1.7% in June and a 2.1% climb in May. The drop last month reflected a 14% decline in orders for military hardware. The decline was the sharpest since a 1.6% drop last September.

The Administration’s midyear economic forecast predicted overall economic growth of 3% for 1985.

Since first-half growth was a sluggish 1.1%, the expansion in the second half will have to approach 5% to meet that goal, a pace many analysts doubt can be achieved.