Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, December 4, 1993 TAG: 9312040127
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The Index of Leading Indicators rose 0.5 percent in October, the third consecutive increase, the Commerce Department said Friday.
But economist David Wyss of DRI-McGraw Hill in Lexington, Mass., warned against too much euphoria. Next year's growth should be good, but not quite so good, about 3 percent, he said.
"This summer, everyone thought the sky was falling, and now everyone is convinced we're heading for the next boom. The truth is somewhere in between," he said.
The index rose 0.2 percent in September and 0.5 percent in August. Ideally, it predicts economic activity six to nine months in advance, with three consecutive movements in one direction considered a clear signal.
In a separate report, the Commerce Department said orders to U.S. factories rose 1.2 percent in October, the third consecutive increase, led by a 5.9 percent gain in transportation equipment, which included a 30.8 percent surge in aircraft and a 4 percent advance in automobiles.
But even excluding the often-volatile transportation sector, orders rose 0.6 percent, the fifth increase in a row.
Wyss said the Federal Reserve probably would respond to the strengthening economy by nudging short-term interest rates higher to head off any chance of inflation worsening.
"I don't think they'll do much. They'll just remind the markets they're there. A quarter point around March or April, maybe three-quarters of a point by the end of the year," he said.
October's leading index report reflected a change in statistical methods to make the index more forward-looking. Commerce officials believe the new methods will make the index more accurate, particularly during periods of slow growth, such as experienced over the past few years.
Nine of the 11 indicators contributed to the upturn. In order of their impact, from largest to smallest, they were: rising consumer confidence, a decline in unemployment benefit applications, a gain in new orders for consumer goods, a rise in prices of raw materials, an increase in contracts and orders for new commercial buildings and business equipment, an advance in the average workweek of factory orders, a gain in building permits, an uptick in stock prices and an increase in the backlog of orders at factories for durable goods such as cars and appliances.
One indicator was negative: a decline in the inflation-adjusted money supply. Another was neutral - business delivery times. A slowdown in delivery times can be a sign of increased demand.
The various changes left the index at a seasonally adjusted 99.1, up 1.1 percent from a year ago and 1.2 percent from three months ago.
by CNB