Trade Deficit, Index Give Mixed Signals on Economy

A key index of future economic growth declined in August, the U.S. trade deficit narrowed and sales of new homes plummeted, the government said today in reports that suggested more mixed signals about the economy.

The Commerce Department said the index of leading indicators edged down 0.2% in August, the third decline in the last four months.

The decline followed a revised 1% gain in July and left the index at 179.1% of its 1967 base.

The index had fallen 0.1% in May and 0.2% in June.

Analysts have said the weakness in the leading index and other economic barometers confirmed that economic growth was likely to remain sluggish in coming months.

The department also said the August trade deficit shrank to $13.3 billion, which was still large but 26.2% lower than the monthly record of $18.04 billion set in July. The improvement stemmed from a big drop in imports, which fell 13.5%. Exports also were lower, by 0.6%.

Even with the improvement, the deficit for the first eight months of the year was running at an annual rate of $173 billion, far above last year’s record of $148.5 billion.

The huge trade imbalance has been blamed for much of what ails the U.S. economy, which has been in a period of sub-par growth for the last two years.

Sales of new homes dropped 13.4% in August, the fifth straight setback and biggest decline in more than four years, the Commerce Department said. Even with the weakness, however, sales of new homes for the first eight months of the year are still 10.6% ahead of the same period in 1985.

The department said that new, single-family homes were sold at a seasonally adjusted annual rate of 594,000 units in August. Sales now stand 36% below their high point this year, reached in March, of 924,000 units at an annual rate.

Since that time, sales have declined steadily, dropping 4.8% in May, 8.9% in June and 4.3% in July. The August decline was the largest since a 19% decrease in January, 1982.