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U.S. Leading Economic Indicators Index Fell 0.2% in February
Bob Willis in Washington


March 20 (Bloomberg) -- An index of U.S. leading indicators fell in February after four months of gains, signaling slower economic growth in the second half of the year.

The New York-based Conference Board said today its index fell 0.2 percent, after a revised 0.5 percent gain in January. The index points to economic activity in three to six months.

The world's largest economy is set to grow at the fastest pace in two years this quarter, spurred by consumer and corporate spending, economists say. Growth will slow as interest-rate increases by the Federal Reserve cool the housing market and make it harder for Americans to take out home-equity loans to finance purchases.

``It does look like the economy is losing steam,'' Chris Low, chief U.S. economist at FTN Financial in New York, said before the report. ``After two years of Fed tightening, it's simply gotten more expensive to finance whatever it is you're trying to finance.''

Economists predicted the index would fall 0.3 percent, the median of 54 estimates in a Bloomberg News survey. Forecasts ranged from declines of 0.7 percent to a gain of 0.2 percent.

Higher claims for unemployment benefits and declines in building permits and consumer expectations were among the indicators that pulled down the index.

A longer factory workweek, greater money supply, new orders for consumer goods and orders for non-defense capital goods all supported the index.

Gross domestic product will expand at a 4.7 percent annual pace in the first quarter of the year, according to a Bloomberg News survey of 74 economists early this month. The expansion will slow during the rest of the year as housing weakens, ending 2006 at an annual rate of 3 percent, the survey showed.

Building Permits

Building permits detracted from the index. Permits fell 3.2 percent in February after a 6.8 percent gain the prior month, the government reported March 16. Housing starts fell 7.9 percent, the biggest drop in almost a year.

The National Association of Realtors forecasts home prices will rise more slowly as higher mortgage rates restrain demand. That will make it harder for owners to extract equity from their homes to finance spending on consumer goods.

``We're going to see a leveling off, or at least a slowing, in the appreciation rate for a little while,'' said Ara Hovnanian, chief executive officer of Hovnanian Enterprises, one of the country's largest luxury homebuilders, in New York on March 8.

Another report March 16 showed that consumer prices rose at a slower pace in February, suggesting the Fed may stop raising interest rates by the middle of the year, economists said. The Federal Reserve raised its key rate to 4.5 percent in January, the 14th straight increase.

`Glide Path'

``The economy appears to be approaching a highly desirable glide path,'' with inflation likely to stay in check and the country closer to full employment, San Francisco Federal Reserve Bank President Janet Yellen told a group of economists in Sydney on March 16.

Dragging down the leading the index, first-time claims for jobless benefits rose to 295,000 in the week ended Feb. 24 from a more than five-year low of 272,000 in the week ended Jan. 13. Claims averaged 287,000 in February, up from 284,000 the previous month.

A report from the Institute for Supply Management showed its supplier-delivery index declining in February, as factories had less trouble keeping up with demand.

Stock prices also weighed on the leading index. The Standard & Poor's 500 index averaged 1,277 last month, down from 1,278 in January.

The University of Michigan's index of consumer expectations, another component of the leading indicators, fell to 74.5 in February from 78.9 in January.

Workweek

Boosting the index, the manufacturing workweek rose to 41 hours, the most in four months, from 40.9 in January, the government said March 10.

A higher yield on the 10-year Treasury note than the federal funds rate also boosted the index, the Conference Board said.

The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.3 percent in February after remaining unchanged in January. The index tracks payrolls, incomes, sales and projections.

The group's gauge of lagging indicators rose 0.1 percent after rising 0.5 percent. The index measures business lending, length of unemployment, services prices and ratios of labor costs, inventories and consumer credit.

http://www.bloomberg.com/apps/news?pid=10000103&sid=ao29SEUeicN0