No. 1 Gauge of Economy Up Modest 0.6%

The government’s main gauge of future economic activity rose a moderate 0.6% in October, the biggest increase in three months but a gain influenced by special factors.

The Commerce Department said the improvement in its Index of Leading Indicators followed a lackluster 0.2% September increase and a 0.2% decline in August.

The August drop was the fourth this year, emphasizing the generally sluggish performance of this collection of forward-pointing economic statistics all year long. In fact, the index has risen just 1.2% from April through October, contrasted with a rise of 3.9% for the preceding six months.

White House spokesman Dan Howard commented, “We have expected the economy to continue to improve in the coming months, and today’s news strengthens our belief that the Reagan economic expansion will create even more jobs and further prosperity for American workers.”

Raw Materials Prices

But analysts said even the 0.6% October increase was not as strong as it appeared because half of the advance came from a rise in raw materials prices.

The raw materials that increased were recycled paper, aluminum and raw cotton. The leading index considers price increases for raw materials a sign of increasing demand and thus a signal of faster growth in the future.

But analysts said rising prices for raw materials can also be a signal of rising inflation and thus a negative force on economic growth.

“This report, while it is the biggest rise since July, is really more of the same,” said Tom Megan, an economist with Evans Economics, a Washington consulting firm. “We are still mired in a slow-growth rut.”

The Reagan Administration has been predicting that economic growth will strengthen substantially in coming months from the generally sluggish performance of the past two years.

5 Indicators Advanced

This view is discounted by private economists who, while not forecasting a recession, do not believe that the economy is about to perform much better than it has since mid-1984. Growth since then, as measured by the gross national product, has averaged 2.4% annually.

For October, the growth in the leading index came from advances in five of 11 indicators.

After the rise in raw material prices, other positive factors were growth in the nation’s money supply, a drop in unemployment claims, growth in business and consumer credit and a change in the pace at which business orders were filled.

Six indicators held back the growth in the index. The largest negative factor was a drop in the length of the workweek, followed by declines in orders for business equipment, a drop in business formations, a decline in orders for consumer goods, a drop in building permits and a fall in stock prices.

In a separate report, the Labor Department said the productivity of American workers increased by a weak 0.2% in the third quarter. The small gain followed a modest 0.5% rise in the spring quarter.