Key index signals no recovery in '92


WASHINGTON -- The government announced yesterday the first decline in six months in its major gauge of future economic activity, reflecting an enduring weakness in the economy and --ing any hopes in the Bush administration of a strong recovery before the election.

"The economy is spinning its wheels," said Diane Swonk, an economist at First Chicago Corp. "Unfortunately, that's life in the 1990s. Those people waiting for a bounce out there are just not going to get it."

This can only be bad news for Mr. Bush, who faces the prospect of seeking a new term with the economy still in the doldrums and his Democratic challenger, Bill Clinton, running a crusade for change.

The 0.2 percent decline in the Commerce Department's Index of Leading Indicators put the brakes on its moderate but steady increase over the first half of the year.

Compiled from already published forward-looking economic data, the index's reversal in June came as no surprise to economists and only reinforced the general view that any recovery will be a long, slow process.

The drop in the index -- designed to predict the economy's direction six to nine months ahead -- followed gains of 0.6 percent in May and 0.3 percent in both April and March.

"I would not get too carried away," said Maury N. Harris, chief economist with Paine Webber Inc. He predicted a "modest" rise in the leading indicators for July.

The broad-based index was pushed down in the latest period by six of its 11 components, including a drop in the inflation-adjusted supply of money in the economy.

Among areas which could improve, if only slightly, were:

* Employment: The index reflected an increase in unemployment claims to 429,000 a week in June from 415,000 in May and a decrease in the average factory workweek to 41.1 hours from 41.3 hours.

But the latest figures for new unemployment claims, for the week that ended July 18, was 400,000, a 22-month low. The July workweek and employment figures due out Friday are expected to show expansion.

Few economists see any major growth in the jobs market, however. Unemployment is currently at 7.8 percent, an eight-year high, and is expected to stay above 7 percent for the rest of the year.

James Solloway, chief economist of Argus Research in New York, said: "Employment gains are pretty hard to come by. Income growth is definitely slow, all of which is going to constrain consumer spending for several months more. Households are not in buyer-shape."

* Consumer confidence: The leading indicators reflected a drop in confidence as measured by the University of Michigan's Survey Research Center.

The Conference Board's Consumer Confidence Index also tracked the decline.

"I think confidence in the final analysis relates to jobs and job prospects. Hopefully, we are seeing a low point," said Chemical Banking's Irvin Kellner.

* Stock prices: As measured by the Standard and Poor's 500, the average monthly value of the stock market dropped in June. Always volatile, the market had benefited from low interest rates as corporations report increasing profit margins and as investors switched from low-yield certificates of deposit and savings accounts in search of higher returns from stocks and bonds.

"The stock market is almost a cinch to be up in August," said Continental Bank's Richard Peterson, but other economists cautioned that stocks appear to be overvalued.

* Building permits: These were down in June. But the lower interest rates introduced last month have already produced a surge of new mortgage applications, which could lead to more permit applications.

Since late June, refinancing applications have tripled and new mortgage applications are up 50 percent, according to the weekly survey of the Mortgage Bankers Association.

The June leading indicators reflected strength in other areas.

Orders for plant, equipment, and consumer goods were all up. Delivery intervals were down and commodity prices were up, both suggesting higher demand.

Those positive developments resulted from foreign demand for exports rather than domestic consumption, and the weakness of the dollar should help keep U.S goods competitive in overseas markets.

"I am inclined to throw all this into a package and say it makes for a strengthening economy," said Charles Renfro of Alpha-Metrix in Philadelphia.

"I don't think this is going to go fast enough for Mr. Bush. I think where Mr. Bush has missed the boat more than anything else was not being as good a cheerleader as he might have been."

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