U.S. Leading Economic Indicators Index Fell in March

By Bob Willis

April 20 (Bloomberg) -- The index of U.S. leading economic indicators in March fell more than forecast, indicating any recovery from what may be the longest recession in the postwar era is still many months away.

The Conference Board’s gauge fell 0.3 percent after a 0.2 percent drop in February that was smaller than previously estimated, the New York-based research group said today. The index points to the direction of the economy over the next three to six months.

Rising unemployment and tight credit mean recent gains in consumer spending, the biggest part of the economy, will probably not be sustained, extending the contraction well into the second half of the year. The report cautions that Federal Reserve and Obama administration measures to boost the financial system may not immediately pay off.

“It isn’t indicating any kind of quick uptick in growth,” said Dean Maki, co-head of U.S. economic research at Barclays Capital Inc. in New York. “We are looking for a recovery that is significantly less robust than what is typically seen after deep recessions.”

The index was forecast to decline 0.2 percent, according to the median of 51 economists in a Bloomberg News survey, after an originally reported decrease of 0.4 percent the prior month. Estimates ranged from a drop of 0.7 percent to a 0.1 percent gain.

Permits, Stocks

Six of the 10 indicators in today’s report subtracted from the index, led by a plunge in building permits and declining stock prices. Faster vendor performance -- signaling a decrease in order backlogs -- a decline in factory hours, rising jobless claims and a drop in bookings for capital goods also contributed to the drop.

Two of those gauges show signs of improving this month. The number of applications for jobless benefits two weeks ago fell to the lowest level since January and stocks through last week rallied 29 percent since reaching a 12-year low on March 9.

The rebound in stocks that began last month was sparked by reports that banks were again turning a profit. A report today from Bank of America Corp., the largest U.S. bank by assets, has taken some of the shine off the jump in equities. The Standard & Poor’s 500 index fell 2.6 percent to 846.68 at 10:13 a.m. in New York.

Rising Delinquencies

Charlotte, North Carolina-based Bank of America said first- quarter profit more than tripled on gains from home refinancing and trading. Still, the stock dropped as more borrowers fell behind on their payments.

“We continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment,” Chairman and Chief Executive Officer Kenneth D. Lewis, said in a statement.

Three of the leading components improved last month, led by an increase in the supply of money. Other positives were a gain in the University of Michigan consumer expectations gauge and a widening spread between the 10-year Treasury and the overnight fed funds rate. Orders for consumer goods were little changed.

A preliminary report last week showed consumer expectations continued to improve this month.

Increased lending and purchases of securities by the Fed since credit markets seized last year have contributed to a jump in the money supply, the biggest component of the leading index.

‘Long-Lasting’ Damage

Still, Fed Chairman Ben S. Bernanke last week said the credit crisis will probably cause “long-lasting” damage to home prices and household wealth.

Economists surveyed by Bloomberg in the first week of April forecast consumer spending will falter this quarter after a first-quarter spurt and recover only gradually toward the end of the year. Purchases will drop at a 0.5 percent pace from April to June and grow at an average 0.9 percent rate the next six months, economists forecast.

Gross domestic product will probably decline at a 2 percent pace in the second quarter after an estimated 5 percent drop in the first three months of the year, according to the survey. Growth will pick up to an average pace of almost 1 percent in the second half, the surveyed showed.

The recession that began in December 2007 already matches the longest since 1933, and the 6.3 percent decline in fourth- quarter GDP was the biggest since 1982. The downturn has cost 5.1 million jobs and economists surveyed by Bloomberg forecast the unemployment rate will rise to 9.5 percent by the end of the year.

Ongoing Recession

The Conference Board’s index of coincident indicators, a gauge of current economic activity, decreased 0.4 percent, after falling 0.6 percent the prior month. The index, which tracks payrolls, incomes, sales and production, is used by the National Bureau of Economic Research to Help determine the end of recessions.

The gauge of lagging indicators also dropped 0.4 percent following a 0.3 percent decrease in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net