Economic Index Takes Healthy Leap : Gauge Rises 0.6% in June--Better Than Predicted

The government’s main economic forecasting gauge rose 0.8% in June, the best showing since March.

The Commerce Department said its Index of Leading Indicators advanced for the fifth consecutive month in a performance that was even better than many economists had predicted.

The 0.8% increase followed a revised 0.5% advance in May and was the largest monthly gain since a 0.9% increase in March.

The June index figure was another in a recent spate of economic reports showing that the economy performed better than expected this spring.

Rise in GNP

Last Friday, the government released its preliminary estimate of overall economic growth, showing that the gross national product expanded at an annual rate of 2.6% in the second quarter, substantially higher than had been forecast.

For the first six months of this year, the economy expanded at a 3.5% annual rate, as measured by the GNP, higher than the Administration’s original forecast of growth of 3.2% this year, when measured from the fourth quarter of 1986.

The rise in the leading index gave weight to the prevailing belief that the economy is expanding at a moderate rate with no sign of a recession in sight.

The recovery from the 1981-1982 recession is now in its 56th month, and if it lasts as expected through October it will become the longest peace-time expansion on record, surpassing the old mark of 58 months set from 1975 to 1980.

Less Robust Growth

Some economists believe that economic growth in the second half of the year may not be quite as robust as in the first half, in part because of a jump in interest rates this spring that hurt housing sales and construction. But they are not forecasting a significant slowdown.

In another report today, the Commerce Department said new home sales edged up 3.5% in June to a seasonally adjusted annual sales rate of 658,000 units. The increase, however, was only a slight improvement after a huge 13.2% drop in May.

The strength in the leading index in June was led by a rise in raw materials prices, indicating that increased demand was driving costs up. While this is considered a positive sign for a pickup in growth, it also means that inflationary forces are on the rise as well.

Other positive forces in June were a big rise in stock market prices, higher demand for manufactured consumer goods and a jump in building permits.

Four indicators were a drag on the overall index. The largest negative factor was a speedup in delivery times by businesses, considered a negative signal of future economic activity. Other negative influences were a slowdown in growth of the money supply, a rise in unemployment claims and a fall in orders for new plants and equipment.

One indicator, the average workweek, was unchanged in June.