Economic Index Up for 6th Month : 0.5% Increase Seen as Sign of Continued Moderate Growth

The government’s main economic forecasting gauge climbed for a sixth consecutive month in July, posting a 0.5% increase that signaled continued moderate growth in the economy.

The Commerce Department said the advance in its Index of Leading Indicators matched the May performance and followed a revised 1% gain in June.

The six straight increases made the best showing since a similar run in late 1985 and early 1986. The gains have been cited as supporting evidence by economists who are predicting that the current recovery from the 1981-82 recession should last through the 1988 election year.

The recovery is already in its 58th month, matching the previous record for the length of a peacetime expansion.

The June increase in the index of 1%, which had originally been reported as a 0.8% increase, was the strongest rise since a 2.1% gain in December.

The index, which is a composite of 11 forward-looking business statistics, got its biggest boost in July from a slowdown in delivery times to businesses. Slower deliveries are taken as a sign of increasing demand, a favorable sign for the future.

Demand Indicators

Other positive forces pushing the index up in July were the string of records set by the stock market and increases in prices of a group of so-called “sensitive materials.” These products, from paper to scrap metal, are considered good indicators of increasing demand although the price increases often translate into higher inflation in the economy.

The other positive force on the index was an increase in contracts and orders for factory plants and equipment.

Three of the components were a drag on the index. The largest negative factor was a drop in manufacturers’ orders for consumer goods followed by a decline in building permits and slower growth in the money supply.

Two indicators, unemployment claims and the length of the average workweek, were unchanged during July. Two others, inventories and business and consumer credit, were unavailable.

For the first six months of the year, the economy has outperformed the expectations of many analysts. Economic growth, as measured by the gross national product, has averaged 3.4%, even better than the 3.2% forecast by the Administration for the entire year.

The second half of the year has gotten off to a good start as well, with unemployment falling to an eight-year low of 6% in July and industrial production climbing at the fastest rate in 15 months.