The government's main barometer of future economic activity rose 0.5 percent in March after a 0.9 percent rise in February, but suggested that, although the economy is improving, some weak spots remain.
The Commerce Department's index of leading economic indicators -- which is designed to foreshadow economic activity three to six months in the future -- showed that manufacturing continued to perform poorly last month, economists said. Six of the indicators for March were positive and five were negative, with the greatest lift coming from the surge in stock prices and the money supply.
Indicators that generally would suggest improved factory production in coming months were negative.
One of the economy's strongest sectors is housing. A separate Commerce report showed that sales of new single-family houses hit a record annual rate of 903,000 last month, a 27 percent improvement over February's level. The March increase was the steepest rise since April 1963, Commerce said.
Economists said that housing will continue to be the strongest sector of the economy, largely because of the dramatic drop in interest rates. Mortgage interest rates are below 10 percent in most areas of the nation, the lowest level in more than seven years.
Commerce Secretary Malcolm Baldrige said the leading indicators for March suggested that growth of the nation's output of goods and services in the first quarter was led by homebuilding, consumer spending and exports.
"The leading indicators gained 0.5 percent in March, with strength concentrated in stock prices and real money suppy," Baldrige said. "As a group, the nonfinancial components declined -- mainly in orders for plant and equipment and for consumer products and industrial material. The positive and negative changes among the components of the leading index of recent months reflect some soft spots in the economy."
Economists said that, although the report generally indicated the economy will grow moderately in the next three to six months, it highlighted continued weakness in the manufacturing sector, which still is suffering from import competition.
"The indicators that are down are most directly related to the manufacturing sector," said David Berson, senior economist for Merrill Lynch Economics. "Overall, it looks like the economy will grow, but the manufacturing sector is not experiencing increased growth and probably won't" because of the continued influx of imports.
The leading indicators index "tells us absolutely nothing about what is currently happening," said Lawrence Chimerine, chief economist for Chase Econometrics. "The economy is still very weak. The index tells us absolutely nothing about the future and it hasn't for a year now."
The index has not declined for 10 consecutive months.
"Housing is the one sector of the economy that has strengthened without question," Chimerine said. ". . . But manufacturing and retail are still very sluggish."
Housing is expected to remain strong for about the next six months and begin to fall off slightly as interest rates begin creeping up in late summer and early fall, economists said.
In the leading-indicators report, Commerce said the six indicators that contributed to the increase in the index were stock prices, money supply, building permits, average workweek, change in credit outstanding and vendor performance, which measures business activity by determining how fast deliveries are made to companies.
Two indicators generally considered to be important in gauging future factory activity declined last month -- manufacturers' new orders for consumer goods and materials, and contracts and orders for plant and equipment.