Economic Index Rises 1.5% --Biggest Surge in 3 Years
The government’s main gauge of future economic activity shot up 1.5% in April, the Commerce Department said today. It was the best showing in nearly three years and the third solid gain in a row.
The department said the rise in its index of leading indicators followed a revised March gain of 0.9%, almost double the originally reported 0.5%. The index had risen 0.8% in February.
The April gain was the largest increase since June, 1983, when it hit 1.9%, and equaled the 1.5% rise of October, 1983.
New Orders Up 0.2%
Commerce Secretary Malcolm Baldrige said the index continues to suggest a healthy economic climate ahead but said he would like to see “more zip” in new orders. The department said such orders in April were up a mere 0.2%, but that was still better than the declines registered in February and March.
“A good part of the gain in the composite index for April and the two previous months was in stock prices and the deflated money supply,” Baldrige said.
“Because of inventory adjustments in the automobile industry, growth may ease in the second quarter,” he said. “But with lower interest rates, lower inflation and a more competitive dollar, the economy’s pace should accelerate during the second half.”
With the latest advance, the 10th in the last year, the leading index now stands at 179.2% of its 1967 base. Today’s report revised January’s calculation from no change to a 0.2% decline and November’s from a 0.3% increase to a 0.1% drop.
Strong Second Half
The strong growth over the last several months has given analysts hope that the economy will rebound substantially in the second half of the year following two years of sluggish growth.
They base this hope on the belief that low oil prices, low interest rates and a weaker dollar will all contribute to hefty growth in the U.S. economy.
One analyst, David Wyss of Data Resources Inc., of Lexington, Mass., said of today’s report: “Now that we’ve had three months in a row of good increases, that’s very good news for the summer economy.”
Sandra Shaber, of Chase Econometrics of Bala Cynwyd, Pa., said the leading indicators clearly show that “we have warded off a recession, and there’s a little bit of gathering evidence that the economy will be back in the second half.”
Money Supply Up 0.49%
The biggest factors pushing up the April index were growth in the money supply, up 0.49%, and outstanding credit, up 0.24%.
Other positive indicators were gains in new orders at 0.2%, net business formation at 0.16%, building permits at 0.09% and stock prices at 0.16%. Initial weekly state unemployment claims declined 0.15%, another positive factor.
Indicators that restrained the overall index in April were the average workweek, which went down 0.08%; contracts and orders, off 0.07%, and changes in sensitive materials prices, down 0.05%. One indicator was unchanged--vendor performance.
