updated 2/19/2004 11:53:24 AM ET 2004-02-19T16:53:24

A key economic forecasting gauge advanced a strong 0.5 percent in January, suggesting that the economy will expand further in coming months.

Major Market Indices

The business-funded Conference Board said Thursday its Composite Index of Leading Economic Indicators rose to 115.0 last month following gains of 0.2 percent in December and 0.3 percent in November. Analysts had expected a rise of about 0.3 percent for January.

Ken Goldstein, the business group’s economist, noted that the index has been gaining since last spring.

The rise points to “sustained economic growth, perhaps through the first half of this year,” he said.

Still, Goldstein warned that there were factors that could create bumps for the economy later this year.

“Consumer confidence could falter if job and wage growth don’t continue to strengthen. Business confidence could erode. The lack of pricing power could be a big problem,” he said. “But while these risks are important, their probabilities are not very high.”

Also Thursday, the Labor Department reported that the number of people filing new claims for unemployment benefits fell sharply last week. That offered hope that companies may be feeling better about business conditions and are less inclined to hand out pink slips.

The department said that for the work week ending Feb. 14, new applications filed for jobless benefits plunged by a seasonally adjusted 24,000 to 344,000.

It marked the largest decline since the beginning of November and left claims at their lowest level since the week ending Jan. 24.

Wall Street responded positively to the economic news, as well as strong earnings in the technology sector. In midmorning trading, the Dow Jones industrial average was up 40.82, or 0.4 percent, at 10,712.81. The Nasdaq composite index was up 6.57, or 0.3 percent, at 2,083.04.

The index of leading indicators is closely watched because it forecasts trends in the economy in the next three to six months. The index has a base of 100, set in 1996.

Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a trade group in Arlington, Va., said the two things needed to boost the industrial sector, which was hard-hit in the recession, were coming back — exports and investment in business equipment.

In addition, he noted, consumer spending should get a boost in coming months from tax refunds and job growth.

The New York-based Conference Board said that five of the 10 indicators that make up the leading index contributed to January’s gain: consumer expectations, stock prices, average weekly manufacturing hours, vendor performance and a drop in initial claims for unemployment insurance. Four declined, while manufacturers’ new orders for consumer goods and materials was unchanged.

The coincident index, which gauges current economic activity, rose 0.3 percent to 115.8 in January. The lagging index was unchanged.

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