Slow Growth Ahead: Leading Index Rises 0.1%

The government’s main economic forecasting gauge moved up slightly in June, the Commerce Department said Tuesday, suggesting a continued struggle for the recovery in the coming months.

The index of leading indicators, which is supposed to forecast economic trends six to nine months ahead, rose 0.1% after a revised decline of 0.4% in May.

The index measures a basket of economic indicators, from unemployment benefit claims to building permits.

It has been showing an economy that has had trouble keeping its forward momentum going, moving ahead one month, losing ground the next.

“What you are seeing is an index with no pattern because we have an economy with no pattern, and I think it will continue for the next couple of years,” said David Wyss of DRI/McGraw-Hill Inc.

Economists take the view that the U.S. economy is struggling to overcome the drag of weak economies overseas that have reduced their appetite for American goods. In addition, the United States is saddled with huge deficits left over from the high-flying 1980s.

“We have been living beyond our means for the past 10 years or so,” said Wyss.

Wall Street economists had forecast that the index would rise 0.2% for June. Moreover, the May figure was revised to show a weaker result than the government’s previously reported 0.3% decline.

The new forecast comes as economists are laboring to measure two very different but powerful effects on the course of the economy--the devastating floods in the Midwest and the budget package of taxes and spending cuts.

At the same time, some analysts argued that the index may be exaggerating the weakness of the economy. “We believe the economy is stronger than the leading indicators data suggest,” said Edward Yardeni of C.J. Lawrence Inc.

Six of the 11 components that make up the index contributed to the June increase: plant and equipment orders, consumer expectations, money supply, claims for unemployment insurance, stock prices and new orders for consumer goods.

On the negative side were changes in manufacturers’ unfilled orders for durable goods, so-called vendor performance, average workweek, changes in sensitive material prices and building permits.

The government last month said economic growth in the second quarter of the year grew at a disappointing 1.6% annual rate following a meager 0.7% rise in the first three months.

The latest report gave another view of this. The department said its index of coincident indicators--which measures current economic activity--fell 0.3% in June after rising 0.3% in May.

However, the lagging index, which measures past economic activity, rose 0.2% in June after falling 0.3% in the prior month.

Analysts have been disappointed by the economy so far this year, and many have been scaling back their forecasts for the second half of 1993. Pessimists are particularly concerned about the impact of the federal budget package headed for final congressional votes this week.

“Fiscal policy has become extremely contractionary,” said economist Mark M. Zandi of Regional Financial Associates in West Chester, Pa. “The budget package being unveiled includes tax increases retroactive to January.”