The government's index of leading economic indicators leaped 4.6 percent in July, the most in any month on record and a further sign that the economy is strengthening. But economists warned that the dramatic increase does not mean the recession has ended.
It was the second month in a row that the indicators, which are supposed to foreshadow changes in the economy, have risen, and the Carter administration was quick to seize on the good news.
But even as Commerce Secretary Philip M. Klutznick was heralding the increase in economic indicators as a sign of the "recuperative capacity of the U.S. economy," there were reminders of the tightrope the government must continue to walk between inflation and recession.
The Bureau of Labor Statistics announced that real earnings for wage and salary workers had declined about 6 percent in the year ended June 30 because salary increases failed to keep pace with inflation.
The Agriculture Department reported that prices received by farmers in August climbed 3.6 percent higher than already record levels, promising higher food prices.
The reports indicating the shape of the economy came only a day after President Carter announced his latest economic revival program, including long-term proposals aimed at fighting inflation.
Much of the change in leading economic indicators was produced by a decline in the number of layoffs, particularly such basic industries as autos. Massive layoffs in the auto industry last spring cut the work force so close to the bone that normal seasonal layoffs for model changes last month appeared slighter than usual.
Of the 10 indicators measured, nine improved and the 10th stayed the same.
"It's pretty widespread," said Larry Chimerine, chairman and chief economist of Chase Econometrics. "It's consistent with the expectation that the recession is nearing an end, but we're cautioning everyone not to expect a sharp recovery."
The layoffs figure means they are slowing down but "not that everybody is going back to work," he said. The rate of recovery in other indicators such as money supply, the stock market and housing, which were up in July, may be slowing down, he said.
The stock market has been down in recent days, although it was up slightly yesterday, but administration economists expect it to be up for the month of August. No new figures are available on housing starts, but Chimerine said that rising interest rates may have a slowing effect.
"The continued rise in the leading indicators adds evidence that we may be pulling out of the recession," Klutznick said. "Some declines in economic activity will continue for a short period of time as business inventories are worked off, but signs indicate that we may soon be growing again."
The indicators "add to what is now an ample body of evidence that the recession will soon be ending," said Courtney M. Slater, the Commerce Department chief economist. The indicators are not meant to say anything about the strength of recovery, she said.
The Bureau of Labor Statistics reported yesterday that layoffs declined and new hires increased slightly from June to July, according to preliminary estimates. It was the second monthly decrease following increases in March, April and May.
Total manufacturing layoffs declined from 2.9 million in June to 1.7 million in July. Most of the drop in layoffs was in the primary metal industry and in the automobile industry, where layoffs had begun to decline in June.
General Motors announced Thursday that it will recall nearly 19,000 workers in the United States and 1,050 more in Canada beginning in October. wThe company said it was basing its recalls on anticipated stronger demand for 1981 cars and trucks. U.S. Steel also announced recently that it was recalling thousands of laid-off workers.
Initial unemployment claims for the week ended Aug. 15 declined to 497,000, the first time in months that the number of new claimants fell below 500,000.
The Labor Department also reported that median weekly earnings for families with one or more wage and salary workers increased by more than 7 percent to $399 in the year ended June 30. Earnings for individuals who worked full time increased at about the same rate to $261. In both cases, however, the gains were wiped out by a 14.4 percent rise in consumer prices.
The Agriculture Department, in a monthly survey of farmers' markets, found higher prices in August for hogs, cattle, corn, eggs, potatoes and soybeans. Farm prices, which have been depressed in the first half of the year, are expected to rise at a much more rapid rate for the rest of the year and into 1981.