Indicators Show Economy’s Pace Has Moderated

The government said Wednesday that its chief economic barometer held steady in July and factory orders dropped more than they have in 2 1/2 years, fresh evidence that the economy is expanding only moderately.

The Commerce Department’s index of leading economic indicators, aimed at predicting growth six months ahead, stalled in July after two months of modest gains.

Analysts said that while the performance was slightly stronger than expected, it is still a signal that rising interest rates are slowing economic growth.

“It’s pretty much what everyone predicted,” said Kermit Baker of Cahners Economics, a Newton, Mass., forecasting service.

The index was unchanged in July after rising 0.2% in June and 0.1% in May. Three straight moves by the index in the same direction are considered a good gauge of where the economy is headed.

The Commerce Department also reported that orders to U.S. factories fell 2.3% in July. Demand for cars plummeted as auto makers shut down plants for two weeks to retool and for vacations.

The drop in factory orders was the first in five months and the biggest since the indicator of manufacturing plans plunged 3.6% in December, 1991. Even excluding the volatile transportation component, they slipped 0.2%. Orders had increased 0.8% in June.

Another report released Wednesday could add to the Fed’s worries that inflation is on the rise. The Purchasing Management Assn. of Chicago said its prices-paid index rose to 79.3% in August from 71.9% in July. The group’s index of area business activity fell to 61.6% in August from 63.0% in July.

Financial markets and analysts are now awaiting Friday’s unemployment report for August.

Leading Indicators

Seasonally adjusted index, 1987 = 100 July, 1994: 101.5

Source: Commerce Department