Economic Index Down 0.1% in May : But Analysts Say 1st Dip of Year Is No Harbinger of Trouble

The government reported today that its chief economic forecasting gauge edged down 0.1% in May, but analysts said the slight dip does not signal economic troubles ahead.

The Commerce Department said the decline in its Index of Leading Economic Indicators was the first setback since a 0.2% drop in January.

While reporting the decline for May, however, the government revised its estimate of April economic activity upward to show an increase of 0.5% in the leading index, instead of the 0.2% gain originally reported.

Analysts said that, even with the slight setback in May, which had been expected, the forecasting gauge is still flashing signals that the economy is on an upward trend.

The economists said there is ample, widespread evidence that the economy is maintaining its forward momentum.

Stock Prices to Blame

The Reagan Administration last week boosted its economic forecast to predict growth, as measured by the gross national product, of 3% this year, a significant revision from a February forecast that put growth at a 2.4% rate.

In May, the biggest single factor holding the leading index back was a decline in stock prices. Without a 2.5% decline in the value of the Standard & Poor 500-stock compilation, the leading index would have registered a 0.1% increase for the month.

Four other business barometers also showed weakness during the month. They included a drop in plant and equipment orders, a rise in weekly unemployment claims, a drop in the length of the average workweek, and a fall in building permits.

Four of the available nine indicators made positive contributions to the index. The biggest positive force was a slowdown in business deliveries from suppliers. This is seen as a sign of rising demand and is thus viewed as a good sign for future economic activity.

Surge in Export Sales

Other positive forces were a rise in manufacturers’ orders for consumer goods, a rise in raw materials prices, also viewed as a positive by the index, and an increase in the money supply.

Michael Evans, head of a Washington economic consulting firm, said the economy is really doing better than the leading index would suggest because much of the growth this year has come from a surge in export sales, which the index does not track very well.

“Exports are moving us along and will continue to move us along for the rest of the year,” he said.