Key Economic Index Is Stagnant in August : Economy: The six-month rise in leading indicators stalls. A separate report on manufacturing showed that the industrial sector again expanded in September, but that the pace of improvement may be losing steam.

The government’s main forecasting gauge for the economy stalled and building activity barely edged higher in August, the Commerce Department said Tuesday, raising fears that the sputtering recovery could run out of gas.

A separate private report on manufacturing, which accounts for about one-fifth of all economic activity, showed that the industrial sector again expanded in September, but that the pace of improvement may be losing steam.

The reports highlight the uneven nature of the recovery that economists generally agree started between April and June. Factories are making more goods, but consumers, worried about their jobs, are reining in spending.

The manufacturing-based rebound has yet to cause a substantial boost in hiring that could stimulate growth in other parts of the economy, such as services.

The department’s index of leading indicators, a guide to economic activity about six months down the road, was flat in August after rising six straight months. Six of the index’s 11 measures were down.

Meanwhile, construction spending rose a meager 0.3% to an annual rate of $406.2 billion, nearly 10% lower than a year ago. Spending rose 1.7% in July.

Separately the National Assn. of Purchasing Management said its closely watched index rose to 55% last month from 54.8% in August.

The index, compiled through a survey of buyers of raw materials and goods for the nation’s corporations, was at its highest since December, 1988.

It was also the fourth straight month the index exceeded 50%, indicating the manufacturing sector is expanding. A reading below 50% suggests contraction.

“We are starting to see the effect of weakness in non-manufacturing areas, and the rate of increase began to top out in manufacturing,” said Gerald Zukowski, an economist at Paine Webber Group. “The recovery is modest and confined to the manufacturing sector.”

The data “suggests that in August and even September, there was a pause in the expansion, primarily because of the consumer side,” said Michael Niemira, an economist at Mitsubishi Bank in New York.

But analysts said the figures do not spell doom for the economy.

“It’s not uncommon when the economy is coming out of recession to have numbers that are mixed for a little while,” said Brian Jones, an economist at Salomon Bros.

The U.S. Chamber of Commerce, a business group, said it was worried by the leading indicators report, saying it “dims hope that we have entered a lasting recovery.”

Mitsubishi’s Niemira said that based on the August data, the probability that the economy will slide back into recession rose to about 38%, from 23% in July.

Still, he said that so far “the recovery is very much intact.”

Officials of the Bush Administration, who have generally tried to paint an upbeat picture of the economy’s performance, have shown signs of growing anxiety. Last week, President Bush met with his top economic advisers and Alan Greenspan, chairman of the Federal Reserve.

The White House has focused on the credit crunch, saying the reluctance of banks to lend money has slowed the recovery.

Policy-makers at the Fed met Tuesday, and economists said the central bank officials were likely to decide to cut interest rates further to keep the recovery from faltering. The Fed cut rates in mid-September in its latest bid to boost the economy by making credit more available.

The Commerce Department said that only four of 11 indicators making up the leading indicators index rose in August: higher order backlogs for manufactured goods, a longer work week, higher stock prices and improved consumer expectations. Six others fell and one was unchanged.

The construction report showed the slim pick-up in spending was due entirely to more new-home building, which is expected to stall since applications for new building permits fell in August.

Index of Leading Indicators Seasonally adjusted index, 1982 equals 100 Aug., ‘90: 144.2 July, ‘91: 145.4 Aug., ‘91: 145.4 Source: Commerce Department

Construction Spending Billions of dollars seasonally adjusted Aug., ‘90: 449.7 July, ‘91: 404.9 Aug., ‘91: 406.2 Source: Commerce Department

Purchasing Manager’s Index The purchasing managers’ index tracks overall business activity at 300 industrial companies. Sept. 1990: 44.9% Sept. 1991: 55.0% Source: National Assn. of Purchasing Management