THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, July 2, 1994 TAG: 9407020535
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY JAMES H. RUBIN, ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 79 lines
More statistical evidence emerged Friday that the economy is advancing at a moderate pace. But a June survey of factory purchasing managers suggested that higher inflation might be lurking in the future.
The government said its chief forecasting gauge of economic activity was unchanged again in May, while construction spending rose 0.9 percent, the third straight increase.
The Commerce Department said the Index of Leading Economic Indicators in May remained at 101.2, matching its all-time high but showing no movement since March. The government began keeping the index in 1948.
Analysts said the trend is further confirmation that the economy is cooling but is still in good shape. Most had expected the index to rise slightly in May.
``It should give some comfort to the financial markets, which were beginning to get another case of the `we're-growing-too-fast' blues,'' said Martin Regalia of the Chamber of Commerce.
``My perception is we're having a mini-slowdown,'' said economist David Orr of First Union Corp. in Charlotte. ``It's the ebb and flow of consumer cash flow. The rate of growth has slowed, but the level of activity is fine.''
Consumer spending, which accounts for two-thirds of the nation's economic activity, has shown signs of slowing from the pace that fueled the growth surge at the end of last year.
Some of the slack caused by leveling consumer demand, particularly for cars, new homes and other big-ticket items, is taken up by increased spending by businesses for factories and equipment, economists say.
Nonetheless, there were signs that consumers could be paying higher prices in coming months for manufactured goods. A June survey by the National Association of Purchasing Management showed more factories paying higher prices in June than at any time in nearly six years.
The survey's broader barometer of manufacturing growth showed a mild decline in the pace of industrial expansion. But the results still showed that American manufacturing continued its expansion for the 10th straight month.
The government's index of 11 forward-looking statistics is designed to predict economic activity six to nine months down the road. Three straight moves by the index in the same direction are considered a good gauge of where the economy is headed.
The index posted a 0.7 percent gain in March, its eighth straight increase before remaining flat the past two months.
The construction spending reports showed increases for all major sectors, including homes, businesses and school buildings. The Commerce Department said outlays for all categories totaled $504.2 billion, up from a revised $499.5 billion in April, when spending increased 0.7 percent.
Seven of the 11 components of the index of leading indicators advanced, led by slower business delivery times that usually are a sign of increasing orders. Other advances - listed according to their impact on the index - were higher raw material prices, a growing inventory of durable goods, a higher index of consumer expectations, higher stock prices, more orders for consumer goods and more business orders for plant and equipment.
On the negative side were more weekly initial claims for unemployment insurance, a shorter average work week, smaller money supply and fewer building permits.
Although the index rating was unchanged for the first two full months of spring, most economists believe the economy grew at a healthy pace in the second quarter - generally in the 4 percent range.
The gross domestic product that measures the nation's economic growth expanded at a 3.4 percent annual rate in the first three months of this year, despite the bitter winter weather and the California earthquake, after soaring at a 7 percent rate in the last quarter of 1993.
Economic growth is expected to be more subdued in the next six months as the full effects of rising interest rates are felt.
The Federal Reserve raised short-term interest rates four times from early February to mid-May, and some analysts expect another boost when the central bank's policy-setting Open Market Committee meets Tuesday and Wednesday.
KEYWORDS: ECONOMY by CNB