April 17 (Bloomberg) -- The index of leading U.S. economic indicators rose in March for the first time in six months as cash poured into the banking system and the Federal Reserve lowered the benchmark interest rate.
The Conference Board's gauge increased 0.1 percent, as forecast, after falling 0.3 percent in February, the New York- based private research group said today. The measure points to the direction of the economy over the next three to six months.
The improvement is a tentative signal that the economy, after deteriorating in the first six months of 2008, may not weaken further in the second half of the year. The report indicates the Fed's rate reductions and efforts to ease the credit crisis may help mitigate the damage from the slump in subprime lending.
``We are flat to negative in the first half and we expect some of these elements of policy to kick in the second half and start to see some improvement,'' said Peter Kretzmer, a senior economist at Bank of America Corp. in New York. ``But the uncertainties surrounding that forecast are certainly increasing.''
A report from the Philadelphia Fed, issued at the same time, showed manufacturing unexpectedly contracted at a faster pace in that region as measures of new orders and shipments dropped.
Economists Forecast
Economists forecast the leading index would rise 0.1 percent, after a previously reported 0.3 percent decline in February, according to the median of 55 projections in a Bloomberg News survey. Estimates ranged from a decline of 0.3 percent to a 0.4 percent gain.
The increase in last month's index brings the decline for the last six months to a 3.3 percent annual pace. A drop of 4.5 percent or more over six months usually correlates with a recession, according to economists at the Conference Board.
``While latest data do not support the assertion that we are in a recession, growth remains weak, a situation that may continue,'' Ken Goldstein, a Conference Board economist, said in a statement.
Five of the 10 indicators in today's report contributed to the gain in the index, led by a jump in the money supply. Slower supplier deliveries, which indicate an increase in orders, and a steeper yield curve were also positive.
Credit Markets
As credit markets seized up, the Fed on March 16 gave all primary dealers in U.S. government bonds the same access to loans formerly reserved only for banks. The central bank now auctions as much as $100 billion in funds a month, making it easier to liquidate some hard-to-sell assets.
The yield curve, or the differential between the Fed's benchmark rate and the yield on the Treasury's 10-year note, also widened last month. The central bank dropped its target rate by three-quarters of a point to 2.25 percent on March 18, leading to a steeper curve.
The yield differential turned positive for the first time in February after 19 months of negative readings that subtracted from the leading index. The Fed has cut its benchmark rate by 3 percentage points since September, with two-thirds of reduction coming in the first three months of this year.
A report earlier this week indicated factory sales are improving this month, in contrast to today's Philadelphia report. The Fed Bank of New York said April 15 that its shipments index rose to 17.5, from minus 5.2 in March.
Recession Forecasts
The economy probably is in a recession, according to James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut.
Economists surveyed by Bloomberg News earlier this month projected growth in the first half of the year will come to a halt. A majority of those polled forecast the U.S. is, or will soon be, in a recession.
The Fed yesterday said economic growth slowed in nine of 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.
Earlier today, the Labor Department said more Americans filed first-time jobless claims last week and the total number receiving benefits rose to the highest level in almost four years, a sign the labor market continues to weaken. The number of initial applications rose 17,000 to 372,000.
Claims were the biggest drag on the leading economic indicators index last month. They averaged 375,900 in March and subtracted 0.25 percentage point from today's gauge.
Negative Influences
Other components that subtracted from the leading measure included decline in consumer expectations, stocks and building permits.
J.C. Penney Co. Chief Executive Myron Ullman said yesterday that the company will moderate its growth plans in the next year to cope with a ``consumer environment that's very hard to predict.''
The Conference Board's coincident index, which looks at real incomes, employment, industrial production and business sales, rose 0.1 percent in March. The gauge declined in two of the prior four months. The measures are among those tracked by the National Bureau of Economic Research in determining whether a recession has begun.
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