Economy: A Flashing Yellow Light

In this Orwellian year of 1984, bad news can be good news, at least where the economy is concerned. The Commerce Department announced last week that the index of leading economic indicators dipped .8% in July after falling 1.3% in June. The report marked the first time since early 1982 that the closely watched barometer of future economic activity has dropped in two consecutive months, and thus suggested that the economy is slowing. Ordinarily, that would be a danger signal, but the White House welcomed the Commerce announcement as a sign that moderating growth will encourage interest rates to fall.

A break in borrowing costs would aid such industries as housing and autos. It might also help lower the lofty value of the dollar, which has risen to record levels because high U.S. interest rates have spurred foreigners to convert their money into dollars for investment in the U.S. A cheaper dollar, in turn, would help narrow the burgeoning U.S. trade deficit by making America’s exports less costly and its imports more expensive. Figures released last week showed that the trade gap hit a record $14.1 billion in July and $74 billion for the year so far.