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CHIEF ECONOMIC GAUGE WAS UNCHANGED IN JULY

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The government's chief forecasting gauge of future economic activity was unchanged in July after increasing by modest amounts the previous two months, the government said Wednesday.

The performance is slightly stronger than anticipated by analysts, who said in advance of the report they expected a small decline that would be consistent with other evidence that economic expansion is continuing, but at a reduced pace.The Commerce Department also said its latest figures confirm earlier estimates that the Index of Leading Economic Indicators was up 0.2 percent in June and 0.1 percent in May.

The gauge remains at 101.5, its all-time high since the government initiated the measurement in 1948. It has now risen in 10 of the past 12 months.

Three of the 11 components of the index advanced, led by higher raw material prices. Also, building permits were up and there were fewer weekly initial claims for unemployment insurance.

Six of the components retreated. They were fewer factory orders for consumer goods, a decline in consumer expectations, faster business delivery times that usually are a sign of decreasing orders, a shorter average work week, fewer unfilled orders for durable goods and lower stock prices.

The Commerce Department said the money supply increased slightly and business orders for plant and equipment decreased slightly, but their contributions to the index canceled each other out.

Wednesday's report appears to support other recent data that suggest the economy is expanding at a moderate pace. Analysts said if the trend holds, it could forestall for months any further increases in interest rates by the Federal Reserve.

"The expansion has surely lost a lot of steam," said economist Robert Dederick of the Northern Trust Co. in Chicago. "The question is, is it transitory or fundamental. I think it's a little of both."

The Fed last boosted interest rates on Aug. 16, and analysts said they expect the central bank to remain on the sidelines until November or later to judge the impact of tighter credit.

The Chamber of Commerce said its survey of more than 8,000 business leaders showed a sharp drop in business confidence in August. Its index, which measures optimism on the economy, sales and employment prospects over the next six months, dropped 6.5 points to 49.9.

Nearly 70 percent of those questioned said the five interest rate increases by the Federal Reserve since February have hurt business.

The Index of Leading Economic Indicators is aimed at predicting activity six to nine months down the road. Three straight moves by the index in the same direction are considered a good gauge of where the economy is headed.

The Commerce Department said last week that in the second quarter the economy expanded at a 3.8 percent annual rate. Most analysts expect the rate to slow to 2.5 percent or less this quarter, which ends Sept. 30.

Despite all the good news, the Federal Reserve has said there are disturbing signs of possible future inflation, particularly higher commodity prices and growing employment that may mean the economy is nearing capacity.