Key Economic Indicator Up Only Sightly for December

WASHINGTON —  The government’s main economic forecasting gauge rose slightly in December while construction spending ended the year on a high note, possibly due to unusually warm weather.

A third report from the nation’s purchasing managers indicated that the economy continued to expand last month.

Analysts said there may be mixed signals in the latest government data. But, with the Federal Reserve Board raising short-term interest rates Wednesday for the seventh time in a year, they said they believe the economy is headed for a slowdown.

The Commerce Department said its index of leading economic indicators rose a mere 0.1% in December after climbing 0.3% the previous month. The index had declined 0.1% in October for only its second drop in 17 months.

The gauge “was basically flat during the fourth quarter (of 1994), pointing to an early 1995 slowdown,” said economist Bruce Steinberg of Merrill Lynch & Co.

The index takes the economy’s monthly pulse by measuring a basket of indicators, from new claims for unemployment pay to building permit applications. It is aimed at predicting activity six to nine months down the road.

Six of its 11 components gained strength in December, while four weakened from November and one--the average workweek--was unchanged from November at 42.2 hours.

Analysts had predicted the index of leading economic indicators would rise 0.2% in December.

In another report, the Commerce Department said construction spending increased 1.1% in December and 8.7% for all of 1994, the biggest gain since an 18.3% rise in 1984.

But analysts attributed the December gain to warmer-than-normal weather and predicted slower growth ahead.

The Federal Reserve, as expected, boosted short-term interest rates half a percentage point. The previous six increases have had only limited impact, but analysts said the full effect of higher rates will be felt this year.

The third report, from the National Assn. of Purchasing Management, said the manufacturing sector grew for the 17th straight month in January and at a slightly faster pace than in December.