Key Indicators for Economy Up 4th Month

The government said today its main forecasting gauge of future economic activity climbed 0.7% in May, the fourth consecutive monthly increase.

The advance in the Commerce Department’s index of leading indicators followed a revised 0.2% April increase, which had originally been reported as a sharp 0.6% decline.

The combination of the healthy May increase and the sharp upward revision in April presented a picture of an economy that appeared to be gathering momentum.

Many analysts believe that economic growth will strengthen in the second half of the year following a very weak April-June quarter. The leading index appears to be providing evidence to support that view.

Commerce Secretary Malcolm Baldrige said that the leading index reflected improving business investment, which should help spur future growth.

Solid Growth Seen

“The net gain in the leading index over the past six months--an annual rate of 7.4%--is consistent with near-term growth of 3 to 4% in the economy,” Baldrige said in a statement.

The May increase in the index was the strongest since a 0.9% advance in March. The index has risen every month since a 0.6% drop in January, which was blamed on special factors relating to the new tax laws.

The main source of strength in May was a rise in the number of hours worked at manufacturing plants. A decline in manufacturing hours had been the biggest factor holding back the April index.

In all, four of the available nine indicators posted increases in May. After manufacturing hours, the largest positive factors were changes in raw materials prices, business delivery times and a rise in plant and equipment orders.

Five of the indicators held back the index. The biggest negative factor was a drop in building permits, followed by slower growth in the money supply, a rise in unemployment claims, a decline in orders for consumer goods and a drop in stock prices.