Leading Indicators Signal Moderate Recovery Rising Home Sales Set Stage For Renewed Economic Growth
Although the economy shifted into reverse in the spring, new government figures point toward a mild recovery that analysts say may postpone further cuts in interest rates.
The government said Wednesday the economy actually shrank in the second quarter, its first decline in more than four years. But analysts said other signs - particularly rising home sales - should put to rest any lingering recession fears.
The Commerce Department also said its Index of Leading Economic Indicators, its main forecasting gauge, broke a four-month losing streak in June to advance by 0.2 percent. It was the first gain this year for the index.
The stock market, which soared in early trading after the Federal Reserve and Japan teamed up to support the U.S. dollar, closed with a loss after a late wave of profit-taking. The Dow Jones industrial average, which gained more than 55 points at its peak, ended the day with a loss of 10.22 points.
The dollar, meanwhile, was at a four-month high against the yen, sending U.S. interest rates lower.
Commerce reported that new-home sales, a barometer of where the economy is headed, climbed 6.1 percent in June to the highest level in a year and a half. Helped by falling mortgage rates, sales increased in every region of the country.
“Consumers seem to know that things weren’t that bad out there,” said Stanley Duobinis, chief forecaster for the National Association of Home Builders. “They’re responding to better financial conditions.”
Ironically, the Commerce Department issued a new method of measuring growth that showed the economy fared worse in the second quarter than previously estimated.
Gross domestic product, measuring all goods and services produced in the United States, fell 0.2 percent in the April-June quarter. Just last Friday, using the traditional method, the department said the economy grew 0.5 percent over the three months.
The latest GDP figure designed to factor in falling prices in recent years for computers and other high-tech goods - declined for the first time since a 2.1 percent drop in the first quarter of 1991.
The new system also showed that growth during last year’s robust expansion wasn’t as strong as previously thought.
“We’ve been watching the wrong speedometer. We haven’t covered the mileage we thought we had.” said economist Sung Won Sohn of Norwest Corp. in Minneapolis, a bank holding company.
The modest improvement in the Index of Leading Economic Indicators in June was in line with other recent data that point to recovery.
The index had declined for four straight months for the first time since six consecutive decreases in the last recession of 1990 and early 1991.
The index was unchanged in January and had not increased since a 0.2 percent advance in December.