Leading Indicators Rise for 7th Month in a Row
The government’s main barometer of economic activity nosed upward by 0.6% in August for its seventh straight monthly gain, prompting predictions of further modest growth in the economy, the Commerce Department said Wednesday.
The index of leading indicators had climbed by a revised 0.3% in July and 0.1% in June. The strength was concentrated almost entirely in two areas: rising stock prices and dropping claims for unemployment insurance.
“Ten of the last 12 months have shown an increase in the index. The trend would suggest the economy is in good shape at least through the first part of next year,” said David Wyss, chief financial economist for Data Resources in Lexington, Mass.
Two other analysts agreed but added cautionary notes.
Stock Market Hiccuping
“The overall message is that the economy is advancing modestly,” economist Martin Mauro of Merrill Lynch said, “but there are signs of slower consumer spending ahead. Also, housing construction looks to be either flat or down.”
Donald Ratajczak, director of Georgia State University’s economic forecasting project, predicted that “the positive trend will continue over the next few months.” However, he spoke skeptically of the latest report, calling the August increase of leading indicators “not that powerful a 0.6%.”
“We would like to see a broader-based area of strength,” he said, noting that a 0.5% jump in prices of 500 common stocks accounted for much of the index’s 0.6% rise. “The stock market is now hiccuping a little bit, and next month it almost certainly will not give a half-point contribution to the index.” The second major strength in the August index was a drop in claims for unemployment insurance. Other positive indicators involved building permits and money supply.
The four negative factors were plant and equipment contracts and orders, vendor performance, changes in prices of sensitive materials and manufacturers’ orders for consumer goods and materials.
The indicator for the average workweek was unchanged.
