No. 1 Gauge of Economy Up Tiny 0.3% : Advance Smallest in 4 Months; Home Sales Down Sharply

WASHINGTON —  The government’s main forecasting gauge of future economic activity rose 0.3% in October, the smallest advance in four months, the Commerce Department reported today.

The October advance in the index of leading indicators was the weakest since a 0.1% June increase.

The slight advance was taken as confirmation by many economists that the economy is headed for more sluggish growth in the coming months.

Those holding to more optimistic forecasts of future activity, however, noted that the index was revised upward for September to a 0.4% gain. It had originally been reported as a 0.1% increase.

The government also reported today that housing sales fell a sharp 5.5% in October to an annual rate of 652,000 units. It was the third decline in a row and the steepest since a 7.2% April drop.

Analysts Puzzled

That situation puzzled many analysts, who had been predicting that sales would turn up again in October given the fact that mortgage rates have continued to decline and are now at their lowest average levels in six years.

Commenting on the 0.3% rise in the leading index, Commerce Secretary Malcolm Baldrige noted that the average monthly gain in the last six months has been 0.4%, slightly below the 0.5% advances needed to hit the Reagan Administration’s 4% growth target for 1986.

Still, Baldrige said, the gains are an improvement over the declines registered at the end of 1984.

“While some crosscurrents in output and spending are evident this quarter, the leading index is pointing toward continued expansion in 1986,” Baldrige said.

The October advance was the sixth in a row. But, except for a 1.3% January gain, the advances this year have been fractional, indicating sluggish economic growth.

Foreign Competition

The economy, as measured by the gross national product, grew at an anemic annual rate of 1.1% in the first half of this year, down sharply from the robust 6.8% growth turned in for all of 1984.

The weakness is a reflection of the battering that U.S. manufacturers have been taking from foreign competition. Hobbled by a strong dollar, domestic producers have seen their foreign sales dry up and have had to fight a growing invasion of cheaper imports.

The dollar has fallen almost 20% since February.