The index of leading indicators rose 0.7 percent in May and an upward revision of the April numbers wiped out a substantial decline for that month, suggesting the economy will continue to grow in coming months, the Commerce Department reported yesterday.

Information about changes in the amount of credit outstanding and in business inventories, not available when the April index was first calculated, turned a 0.6 percent drop into a 0.2 percent gain, the department said.

Commerce Secretary Malcolm Baldrige said in a statement that the index, which can foreshadow changes in the economy, has gone up at an annual rate of 7.4 percent over the past six months. Such a rate of increase, he said, "is consistent with near-term growth of 3 percent to 4 percent in the economy."

Separately, Beryl Sprinkel, chairman of the Council of Economic Advisers, told Congress' Joint Economic Committee that improvements in the nation's trade balance and rising capital spending by businesses will keep the economy growing at a more than 3 percent rate in the second half of this year and in 1988.

In an interview last week, Sprinkel said the gross national product, adjusted for inflation, rose only slightly in the quarter that ended yesterday, following growth at a 4.8 percent rate in the first quarter. He said the administration is sticking by its prediction of last winter that real GNP will increase about 3.2 percent between the fourth quarter of 1986 and the fourth quarter of this year.

However, Sprinkel warned yesterday that the economy might expand more slowly if the Federal Reserve continues on its present monetary policy course for several more quarters. The CEA chairman said the tighter policy the Fed has pursued this year was appropriate, given the very rapid increase in the money supply last year, and that money growth has slowed sharply.

"I would like to take this opportunity to emphasize, however, that such a dramatic slowdown of money growth, if continued for several more quarters, could place the continuation of reasonable growth of real output and employment at risk," he declared.

Sprinkel's expectations about the economy are similar to those of many forecasters, who believe economic activity will speed up again after a slow second quarter. For instance, George Perry of the Brookings Institution predicted last week that real GNP will rise at a 3.5 percent annual rate in the second half, with inflation running at 4 percent or a bit more.

Some other forecasts show a somewhat weaker picture, while a few forecasters think growth could be even stronger than the administration expects.

Meanwhile, in a report prepared for use at a meeting next week of top Federal Reserve policymakers, officials in most of the 12 Federal Reserve districts around the country said moderate economic growth is continuing.

"Manufacturing orders and shipments continue to grow, with few reports of price increases or inventory buildup. Lumber production is operating near capacity, due in part to an expansion of exports. Housing construction continues at a steady pace despite the recent increase in mortgage rates. High vacancy rates and the new tax laws have reduced commercial construction," the report said.

The Fed report went on to note that most farming sectors remain depressed, as does the energy sector, though there has been some increase in oil drilling in response to higher oil prices.

The Commerce Department report on the leading indicators said that of the nine indicators now available, an increase in the length of the average workweek in May contributed the most to the overall increase of 0.7 percent in the index. Close behind was an increase in prices of sensitive materials. Two other components covering delays in deliveries by vendors and contracts and orders for new business plants and equipment also rose.