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Economic Index Sinks 0.1%; Home Sales Also Drop

June 30, 1988|ART PINE | Times Staff Writer

WASHINGTON — The government's main economic barometer edged down by 0.1% during May in its first decline in four months, the Commerce Department reported Wednesday, but analysts said the dip does not mean that the economy is headed for new trouble.

The department also revised its figures for April to show that the indicators jumped a sharp 0.5% during that month, instead of the 0.2% it had estimated previously.

Separately, it reported that sales of new homes fell by 0.3% in May, also the first dip recorded since last January. The decline in new-home sales during May followed a sharp 1.1% increase in April.

The combination of figures did not alter general expectations that the economy will continue to perform smoothly over the next several months. It now has so much momentum that the Reagan Administration last week revised its own economic forecast to show a likely 3% growth rate this year instead of the 2.4% it had projected in February.

'Pretty Good Shape'

Lyle Gramley, a former Federal Reserve Board member who is now chief economist for the Mortgage Bankers Assn., attributed at least part of the May setback in new-home sales to the possibility that some buyers may be finding older homes a better bargain. He predicted that the housing sector would slow later if interest rates continue to rise.

At the same time, however, Gramley said he believes that the overall economy "is still in pretty good shape" and will continue to be so for the foreseeable future. Despite the May decline in the leading indicators index, Gramley said, "I don't see growth slowing much yet."

Robert Wescott, economist at Alphametrics, a Philadelphia-based economic consulting firm, agreed. "Basically, I'm extremely optimistic about the way 1988 is shaping up," Wescott said.

The reports came as, separately, the Federal Reserve Board's policy-making Federal Open Market Committee began a two-day meeting Wednesday at which it will consider whether to raise interest rates further to help dampen inflation pressures.

Although the panel's decisions will not be known publicly for several weeks, expectations are that the committee will vote to continue its current policies intact. The Fed wants to avoid raising interest rates as long as possible.

Month-to-month changes in the index of leading indicators are not taken too seriously by most economists because the indicators frequently are so volatile. "A single negative figure doesn't any way change my view that the economy is robust," Wescott said.

Five of the nine indicators that the department uses to compile its initial report showed worsening trends in May--stock prices fell; orders for plant and equipment declined, after adjustment for inflation; average weekly initial claims for state unemployment insurance rose; the length of the average work week declined, and building permits fell.

The other four indicators registered improvements: The percentage of companies experiencing longer lag times in receiving shipments of goods rose; manufacturers' orders for consumer goods and materials gained; prices of sensitive materials rose more widely, and the growth of the nation's money supply remained virtually unchanged.

The May report placed the overall index at 192.6% of its 1967 average.

The report on housing showed sales of new one-family houses at an annual rate of 658,000, after adjustment to compensate for seasonal patterns--about the same as the 660,000-home rate that was recorded in April. Before adjustment, some 62,000 new houses were sold in May.

The average sales price was $135,900.

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