Future Index Has Sharpest Fall in 2 Years

The government said today its main forecasting gauge of future economic activity plunged 0.6% in April, the biggest decline in two years.

The weakness in the Commerce Department’s Index of Leading Indicators was the first decline since a 0.5% drop in January and the largest downturn since a 0.8% decrease in April, 1985.

The index rose 0.8% in March.

Analysts cautioned against reading too much into one month’s change in the index, but they said the April performance was a warning signal that economic growth is slowing.

The weakness in the index was heavily influenced by a huge drop in the average number of hours worked at manufacturing plants. Economists said this number overstated the weakness last month because the survey on which it was based was taken during a week that included two religious holidays, Good Friday and Passover.

5 of 9 Indicators Declined

Without the decline in manufacturing hours, the index would have fallen 0.1%.

Still, economists said five of the nine indicators available declined during the month, reflecting a widespread slowdown in economic activity.

Economic growth, as measured by the gross national product, spurted ahead at a rapid 4.4% rate in the first three months of 1987, the fastest economic growth in almost three years.

But economists are predicting the economy will slow dramatically during the April-June quarter, with some even forecasting a decline in the GNP, something that hasn’t occurred since the end of the 1981-82 recession.

3.2% Rate Predicted

The Reagan Administration is predicting the economy will grow at a 3.2% rate for all of 1987, substantially better than the 2.5% GNP growth turned in for 1986, the poorest showing since the recession ended in 1982.

Following the drop in manufacturing hours, the other negative influences on the leading index in April were a decline in building permits, a drop in manufacturing orders for consumer goods, a drop in stock prices and a drop in contracts and orders for business investment.

Four of the indicators made positive contributions to the index.