Favourable trend from indicators

Press, 1 September 1986, Page 16

Favourable trend from indicators

NZPA-Reuter Washington

The index of United States leading indicators, a key harbinger of economic trends, rose a surprising 1.1 per cent in July, reversing a 0.4 per cent fall the previous month, the Government has announced.

Most analysts had expected the indicator, issued by the Commerce Department after a string of poor economic statistics, to be either unchanged or to rise 1 per cent at the most. The increase follows a strong rise in durable goods orders in July but also comes after statistics showing gross national product grew at a mere 0.6 per cent annual rate in April, May and June, the lowest rate in four years. That figure and several other gloomy statistics, such as a continuing surge in the massive trade deficit, had heightened fears the United States economy was about to relapse into recession.

As a result, the Federal Reserve Board cuts its discount interest rate half a point to 5.5 per cent two weeks ago the lowest rate for nine years. But expectations that West Germany and Japan might follow America’s lead were dashed last week when the German central bank, the Bundesbank, left its credit policies unchanged. As expected, much of the increase in the leading indicators index reflected a surge in the money supply, a factor which in turn is attributable to the Federal Reserve Board easier credit policies. In addition, higher contracts and expanded debt contributed to the gain. Many analysts say gains due to factors like these, especially the money supply, make the index a less reliable indicator of turning points in the economy.