Key Index of Indicators, Hurt by GM, Falls in June

The index of leading economic indicators--intended to project U.S. growth over the next six months--fell in June, confirming that the economy is cooling.

The Conference Board’s index declined 0.2% in June, mostly because of an increase in jobless claims from the strikes against General Motors Corp. June’s decline came after a 0.1% drop in May and a flat showing in April. One rule of thumb, analysts say, is that three consecutive declines in the index could signal a recession.

U.S. economic growth slowed dramatically in the second quarter, the government reported last week. Stocks have slumped since rising to records just two weeks ago as jitters over the impact of Asia persist. That has pushed some analysts to raise the prospect that the U.S. economy could contract over a sustained period for the first time in more than seven years.

Such speculation arises “out of boredom with an otherwise fabulous economy,” said Roseanne Cahn, an economist at CS First Boston in New York. “I don’t think there’s any chance of a recession soon, barring some extraordinary event.”

Nonetheless, stocks fell for a third straight day. The Dow Jones industrial average plunged nearly 300 points or 3.4%, to close at 8487.31.

June’s drop in the economic indicators index suggests that the slowdown in growth evident in second-quarter gross domestic product “will be sustained, but it is too early to consider this a recession warning,” said Michael Boldin, director of business cycle research at the Conference Board. GDP grew at a 1.4% annual rate in the second quarter, down from a 5.5% rate during the first three months of the year.

The indicators index dropped just ahead of the 1990-91 recession, falling or holding steady for eight months from April through November 1990. It began to rise again in December of that year and the recession ended in March 1991.

“The consecutive monthly declines might set off some alarm bells,” said David Orr, chief economist at First Union Capital Markets Group in Charlotte, N.C. Still, those bells should be muted, he said.

For one thing, the eight-week walkout at GM knocked as much as a full point off second-quarter growth. It also led to a surge in first-time jobless claims in June.

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Index of Leading Economic Indicators

Seasonally adjusted index; 1992=100

June: 105.0

Source: Conference Board