Leading Indicators Climb 0.8% in May
The government’s main economic forecasting gauge climbed 0.8% to a new high in May, the government reported Wednesday in a new sign that the nation’s longest peacetime expansion will last at least through the end of its eighth year.
However, the report also pointed to a sobering new drop-off in consumer confidence. And one analyst said the economy “could be close to a recession by the end of the year.”
The Commerce Department said its index of leading economic indicators, designed to forecast economic activity six to nine months ahead, rose to 146.2% of its 1982 base. The previous record of 146.0 was set in January, 1989.
But analysts attributed the improvement mainly to overseas demand for U.S. products and said U.S. consumer spending remains weak. Some suggested that because of consumer restraint, economic growth could slow further in the months ahead.
Indeed, the largest negative in the report was an index measuring consumer confidence, which fell back from a slim advance in April. It also had been negative in January and February and unchanged in March.
Other recent Commerce Department reports and a national survey earlier this month by the Federal Reserve also point to a slowdown in consumer spending, which accounts for two-thirds of the nation’s economic activity.
“Consumers are getting to be a lot more cautious than they have been,” said Bruce Steinberg, senior economist with Merrill Lynch Capital Markets in New York. “The main reason they’re retrenching is they are weighed down by the debt they piled up during the 1980s.”
David Jones, an economist with Aubrey G. Lanston & Co., a New York government securities firm, said consumers also are beginning to worry about their job outlook and “a constant barrage” of unfavorable economic news.
But analysts said exports appear to be picking up the slack, stimulating the manufacturing sector, which has been sluggish for months. Overall, the economy grew at only a 1.1% annual rate in the last quarter of 1989 and just a 1.3% rate in the first three months of this year, although that was enough to keep alive the expansion that began in November, 1982.
“The May leading indicators show that except for housing and construction, the production side of the economy is beginning to recover,” said William K. MacReynolds, forecasting director for the U.S. Chamber of Commerce.
Steinberg agreed, but said: “It’s principally the export industries that are doing well right now. And that’s principally the high-technology companies like computers, and the aircraft industry.”
