Forecast Index Says Recession Unlikely in ’90

The government’s main economic forecasting gauge rose 0.8% in May, another indication the economy will skirt a recession this year, the government reported today.

The index of leading economic indicators is designed to forecast economic activity six to nine months in advance. If the economy continues to grow through November, it will reach its eighth year of expansion. It already is the longest expansion in peacetime history.

But today’s Commerce Department report also contained an ominous note--the largest negative contributor among the 11 forward-looking indicators was an index measuring consumer confidence.

It was further evidence that Americans are becoming more cautious in their spending, which accounts for two-thirds of the nation’s economic activity and which has helped fuel economic growth for 7 1/2 years.

But as consumer spending appears to pause, analysts point to business investment and overseas demand for U.S. goods as a major stimulus for continued, although weak, growth.

Seven of the components were positive in May--a longer average workweek, an increase in the price of raw materials, a larger amount of orders for consumer goods, higher stock prices, a decrease in the weekly unemployment claims, slower business-delivery times and an increase in orders for new plants and equipment.

In addition to the drop in consumer confidence, the other negatives were a decrease in the money supply, a smaller number of building permits and a drop in manufacturers’ unfilled orders.