Economic Indicators Up 0.6% in January : Analysts Expect Gains Tempered by Fed’s Constraints

The government’s chief economic forecasting gauge rose a healthy 0.6% in January after it posted an even stronger gain the previous month, the Commerce Department said today.

January’s jump in the index of leading economic indicators, a measurement designed to predict economic activity six to nine months in the future, followed a 0.7% increase in December and an unchanged level of activity in November.

The index vacillated up and down during the latter part of 1988, which analysts called a sign that economic growth will slow somewhat this year.

Nevertheless, 1989 began on a strong note and analysts have seen few signals that the long-anticipated slowdown has begun.

Analysts expect the economy to continue its record recovery this year, but they believe the pace of growth will slow in response to a yearlong campaign by the Federal Reserve Board to push up interest rates and cool the economy to restrain inflation.

Optimistic Assumptions

While President Bush is pinning his budget and deficit-reductions plans on an optimistic assumption for a 3.2% rate of growth in the gross national product during 1989, many private forecasters expect growth to be closer to 2.7%.

“Growth will be very robust this quarter, but starting next quarter, I fully expect to see the effects of the higher interest rates,” Michael Evans, head of a Washington consulting firm, said.

William Dunkelberg, dean of the School of Business and Management at Temple University, said economic reports so far this year give “no indication that the economy is going to weaken substantially in the next half-year.”

In January, eight of the 11 indicators included in the index contributed to the increase. The biggest positive factor was a rise in a measure of consumer optimism.

Other factors pulling the index up were rising stock prices; increased raw materials prices, signaling high demand; a longer average work week; slower vendor deliveries to companies indicating strong demand; an increase in manufacturers’ unfilled orders; a drop in initial claims for unemployment benefits, and more orders for new plants and equipment.

Three indicators made negative contributions, led by a contraction in the money supply. Other negative factors were a decline in manufacturer orders for consumer goods and fewer building permits.

Over the last 12 months, the index has climbed 5%, compared with a 1.8% gain during the previous 12-month period.