Economic Index Rises; Factory Orders Gain : Indicators: Analysts say the numbers confirm a continuing expansion.
In new signs of moderate economic growth, the government’s main forecasting gauge rose in August for the second time in three months and auto production pushed factory orders to their biggest gain since last fall.
Issuing its Index of Leading Economic Indicators for one of the last times, the Commerce Department said Wednesday the barometer of economic activity climbed 0.2% in August to retrace an identical loss in July.
The index, which the government is turning over to a private company, also edged up in June for its only other advance this year.
The department also announced that factory orders swelled by 2.6% in August as rebounding auto demand pushed the indicator to its largest increase since a 2.8% leap last November. Excluding transportation goods, orders were up 1%.
Analysts said the numbers confirm that the economy is expanding moderately with little evidence of inflation and will probably continue to do so at least until the end of the year.
“The backlog of inventories that caused much of the slowdown in the middle of the year now seems to be clearing, setting the stage for new production,” said Jerry Jasinowski, president of the National Assn. of Manufacturers.
“The economy is poised to resume growth, but at a moderate level of around 2.5%,” said Chris Varvares of Laurence H. Meyer & Associates, a forecasting firm in St. Louis. “Manufacturing went through some pretty rough sledding in the middle of the year, but there’s enough momentum now that the Federal Reserve [Board] doesn’t need to cut interest rates.”
The Fed, after doubling the rate banks charge each other for overnight loans over a one-year span, lowered it in July for the first time in nearly three years.
The stock market continued its weeklong slide. The Dow Jones industrial average fell 9.03 points to 4,740.67. The benchmark 30-year Treasury bond was little changed, yielding 6.43%.
Higher stock prices were one of the factors contributing to the rise in the Index of Leading Economic Indicators in August. Eight of the barometer’s 11 components contributed to the advance.
In a cost-cutting move, the embattled Commerce Department will hand over control of the report in December or January to the New York-based Conference Board, a private research group. Republicans in Congress have cut appropriations to the department and are threatening to dismantle it.
The index, aimed at predicting activity six to nine months down the road, had fallen four straight months earlier this year and added to recession fears before recovering in June. Three straight moves in one direction are considered a good indicator of where the economy is headed.
In the August report, the components besides stock prices that made positive contributions to the index were factory orders for consumer goods, initial weekly claims for state unemployment insurance, money supply, average workweek, new business orders for plant and equipment, building permits and manufacturers’ unfilled orders for durable goods.
The only components that subtracted growth were prices of raw materials, more rapid business delivery times that signal declining demand, and slipping consumer confidence.
The economy managed to produce meager growth in the spring as businesses began to pare huge inventories. Gross domestic product, measuring the output of all goods and services in the nation, increased 1.3% in the second quarter.
In the factory report, orders rose in August for the first time in three months and came after a 1% decline in July that the government previously estimated at 1.3%.
While car and truck production led the way, other durable goods such as industrial machinery and metals also surged.
Leading Indicators
Seasonally adjusted index 1987=100:
August 1995: 101.2
Source Commerce Department
Factory Orders
Total new orders in billions of dollars, seasonally adjusted:
August 1995: $301.6
Source Commerce Department
