Economic Indicators Show Ongoing Slowness, No Recession

The government’s main economic forecasting gauge failed to budge in June, the Commerce Department said Wednesday in a report that analysts said portended a listless economy in the months ahead.

The department’s index of leading economic indicators, designed to forecast economic activity six to nine months in advance, was unchanged for the second month this year. It had risen in March and May and fallen in February and April.

Many economists had expected a small increase in June. If the index were to fall for three straight months, it could signal a forthcoming recession.

“This meandering is consistent with what is happening in the economy,” said economist Darryl Delano of Cahners Economics in Newton, Mass. “It all nets out to basically nothing.”

David Berson, chief economist with the Federal National Mortgage Assn., agreed.

“Basically, what we’ve seen over this year is small increases, small decreases, with everything averaging around zero,” Berson said. “The economy is going to continue in its slow-growth path.”

But other analysts, such as David Jones, an economist with the New York securities dealer Aubrey G. Lanston & Co., expressed deeper concern.

“What we have got is an economy that is slowly sinking into possibly a mild recession by either late this year or early next,” Jones said.

The Bush Administration predicted earlier this month that the nation’s economy would grow 2% this year.

But the growth rate as measured by the gross national product was just 1.7% in the first quarter and 1.2% in the second, meaning the economy would have to expand at an annual rate of 2.9% during the second half of the year to meet the Administration’s prediction.

Few economists expect that amount of growth.

Indeed, the National Assn. of Purchasing Management released a survey Wednesday showing that the manufacturing economy slumped in July for the first time in three months.

And the Commerce Department, in another report Wednesday, said construction spending in June was flat after falling during the previous two months.

The purchasing managers index fell to 47.7% in July from 51.1% the previous month, ending three months of increases. A reading below 50 indicates that the manufacturing economy generally is declining.

The index, a composite of survey results on order levels, prices, inventory and other areas, had been below 50 for 11 straight months. It averaged 48.8% in the first seven months of 1990. July’s reading was the lowest since 45.2% in January.

The decline was the sharpest since the index fell about nine percentage points in early 1984, economists said.

Orders from manufacturers tumbled to 46.2% from 54.9% in June. The rate was the lowest since January “and will undoubtedly weaken, if not decrease, the recent modest growth in production,” the association said.

The Commerce Department’s construction spending report showed that spending on new construction was unchanged in June at a seasonally adjusted annual rate of $447.5 billion after falling in each of the two preceding months.

Spending had dropped 0.3% in May and 1.9% in April.

Both the building and manufacturing sectors have borne the brunt of high interest rates as the Federal Reserve attempted to stem inflation by slowing the economy.

“The June leading indicators report dashes almost all hope that the economy will pick up steam later this year,” said Richard W. Rahn, chief economist with the U.S. Chamber of Commerce.

“The weak industrial sector will get even weaker by year’s end as manufacturers’ new orders fall and growth in unfilled orders wanes,” Rahn added. “It would take only a mild amount of order cancellations to stop growth in industrial production and turn a weak economy into recession.”

Both manufacturers’ new orders for consumer goods and unfilled orders were among the negative statistics in the June report. Others were a decline in the money supply, a drop in an index measuring consumer confidence, a decrease in orders for new plants and equipment and an increase in weekly unemployment claims.

The consumer confidence index also was negative in May, leading some analysts to fear that consumers were retrenching. Consumers account for two-thirds of the nation’s economic activity.

Nevertheless, only four of June’s leading indicators were positive: an increase in the price of raw materials, higher stock prices, an increase in building permits and slower business delivery times. The length of the average workweek was unchanged.

The various changes left the index at 146.0% of its 1982 base of 100 and up 1.4% from its level a year ago.