Raft of Key Forecast Data Suggest Economy Continues to Grow Steadily

Improvement in a key gauge of future economic activity, combined with data on construction and manufacturing, suggested Monday that the economy is rolling ahead at a steady pace without promoting higher inflation.

“ ‘Moderate’ may be too slow a term to describe the current rate of growth in the economy,” said Peter Jaquette, a senior economist at WEFA Group, an economic consulting firm in Eddystone, Pa. “It’s not a boom, but it’s growing quite well.”

A report from the Conference Board, a business research group, said its index of leading indicators, designed to forecast economic trends six to nine months ahead, climbed 0.3% in April after a revised 0.3% gain in March and a 1.3% jump in February.

That was the best string of unbroken increases in the leading indicators since late 1993 and early 1994, when the index rose for six straight months from August 1993 to January 1994.

Seven of 11 measures in the basket of economic indicators picked up strength in April, while four showed some decline from March.

The biggest gains came in orders for consumer goods and materials, increased commodity prices and fewer applications for state unemployment benefits.

The most significant declining components in April were fewer plant and equipment orders, weaker consumer expectations and a lower money supply.

The report underlines the economy’s pickup this year from the closing months of 1995, when it skirted recession with gross domestic product growing at a scant 0.5% annual rate in the fourth quarter.

The Conference Board report, compounded with Chrysler Corp. reporting that sales jumped a record-setting 17% in May over a year ago, sent the yield on the benchmark 30-year Treasury bond 0.02 percentage point higher to 7.01%.

Also, the government announced that construction spending rose 1.4% in April, its second straight advance. That came despite rising mortgage rates, which make purchases more expensive.

“The economy’s continuing to grow at a pace that should not reignite inflation,” said Marilyn Schaja, money market economist at Donaldson, Lufkin & Jenrette Securities Corp. in New York.

“In terms of the general outlook, people should feel OK. People will not feel great--there’s still this concern about job security,” she said.

Amid the positive data, one piece of mixed news emerged. The National Assn. of Purchasing Management’s index, compiled through a survey of purchasing executives to forecast manufacturing activity, fell to 49.3 in May from 50.1 in April.

Its reading was more recent than the April figures tallied by the Conference Board and the Commerce Department. But the decline was not seen as bad news.

In falling below 50, the index suggested a slowdown in the manufacturing sector. But in staying above 44.5, it indicated growth in the economy at large.

The increase in the purchasing managers’ index could be a “matter of concern” for Federal Reserve Board policymakers, said J. Alfred Broaddus, president of the Federal Reserve Bank of Richmond, Va. Still, he said, “the economy is growing modestly and is likely to continue to do so.” Fed policymakers next meet July 2-3 to discuss interest rates.

Generally, the new data revealed no great surprises. The government reported last week that the economy grew at a 2.3% annual rate in the first three months of the year. Many economists expect that to increase to 3% or greater in the second quarter.

“Optimally, what you want to have is 2% to 2.5% growth, because if not, you’re going to have inflation,” Schaja said.

Many economists expect the second-quarter acceleration will be short-lived.

Schaja, for one, predicts the economy’s growth will slow in the year’s second half to the 2% range.

* AUTOS ON A ROLL

Chrysler and GM post unexpectedly strong sales. D2

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Leading Indicators

Seasonally adjusted index, 1987=100

April, 1996 : 102.1

Source: Conference Board

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Construction Spending

In billions of dollars, seasonally adjusted:

April, 1996: $551.7

Source: Commerce Department

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Purchasing

The purchasing managers’ index tracks overall business activity of more than 300 industrial firms. A reading above 50 indicates growth; below 50 means decline.

May, 1996: 49.3

Source: National Assn. of Purchasing Management