Indicators’ Gain Biggest in 5 Months

The government’s main economic forecasting gauge had its strongest showing in five months during August, a sign of sustained growth that could mean higher interest rates soon.

The Commerce Department said Tuesday that its index of leading economic indicators surged 0.6% in August, the 13th straight month without a decline.

Since July, 1993, the barometer has risen 10 times and remained unchanged three times. It held steady this July after two months of small gains. The last time it rose more than August was in March, when it jumped 0.7%.

“There is a good momentum in the economy,” said economist Roger Brinner of DRI-McGraw Hill, a forecasting service in Lexington, Mass. The index “is consistent with a stream of news.”

The August advance in the index was nearly across the board as nine of the 11 components showed improvement. Factory orders for consumer goods led the way, followed by slower business delivery times that usually are a sign of rising orders and fewer weekly initial claims for unemployment insurance.

Also advancing were stock prices, raw materials prices, consumer expectations, the average workweek, business orders for plant and equipment and building permits.

The only negatives were a lower money supply and fewer unfilled orders for durable goods.

Analysts are looking to Friday’s unemployment report for further signs that the economy may be reaching the limit of its ability to expand without inflation. The jobless rate is 6.1%, which some analysts consider close to full employment.

The Federal Reserve Board, which has raised interest rates five times since February, pays particular attention to the job market for signs of worker shortages that could lead to higher wages and inflation.

Analysts expect the central bank’s Federal Open Market Committee to boost rates to 5.25%, a half-point rise, when the policy-making group next meets Nov. 15.

But some say they believe Fed Chairman Alan Greenspan was handed authority by the committee last month to move sooner if conditions warrant.

Index of Leading Indicators

Seasonally adjusted:

August 1994: 102.1

Source: Commerce Department

CH Index of Leading Indicators, Los Angeles Times