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U.S. Economy: Leading Indicators Index Falls in March
Courtney Schlisserman in Washington


April 20 (Bloomberg) -- An index of U.S. leading indicators fell for a second month in March, suggesting record energy costs and the slowdown in housing will chip away at economic growth.

The Conference Board's index declined 0.1 percent after dropping 0.5 percent, the first back-to-back decrease since February and March 2001, the New York-based group said. The index points to economic activity in three to six months.

Higher borrowing costs are slowing an economy that's estimated to have expanded at an annual rate of 5 percent in the first quarter and may allow the Federal Reserve to soon stop raising interest rates, economists said. Initial jobless claims fell last week, a separate report showed, suggesting job and wage gains will help keep consumer spending from slumping.

``The momentum of growth is slowing as we go forward,' said Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein in New York, who correctly forecast the decline. ``This sort of data would confirm the Fed's expectations and probably also let them hold rates steady after the next rate hike in May.'

First-time claims for unemployment benefits fell 10,000 last week to 303,000 and the number of Americans on jobless rolls stayed close to a five-year low, the Labor Department reported today. The number of people continuing to collect state jobless benefits rose to 2.439 million in the week ended April 8 from 2.421 million, which was the lowest since January 2001.

The Treasury's benchmark 10-year note was little changed, yielding 5.02 percent at 11:29 a.m. in New York. The Dow Jones Industrial Average rose 46 points, or 0.4 percent.

The March leading indicators index was forecast to be unchanged, according to the median estimate in a Bloomberg News survey of 52 economists, after an originally reported 0.2 percent drop in February.

The world's largest economy will probably expand 3.3 percent this quarter and slow to a 3 percent pace by the end of the year, according to a Bloomberg survey of economists taken from April 3 to April 7.

``The latest leading indicator readings suggest some slowing in the pace of economic activity through this summer,' said Ken Goldstein, labor economist at the Conference Board, in a statement.

The leading index follows reports showing that gains in retail sales and industrial production were higher than expected last month, tempering a slowdown in the housing market.

Federal Reserve

The Fed has raised its benchmark interest rate 15 straight times since June 2004 to fend off inflation and will probably increase it again next month, according to economists surveyed by Bloomberg.

``I expect first-quarter real GDP growth to be quite strong and I've already factored that into my views,'' Fed Bank of San Francisco President Janet Yellen said this week in San Jose, California. ``I will of course be quite alert to any signs that the hot pace of growth may not slow after the first quarter. That would constitute a surprise.''

Four of the 10 indicators had a negative impact on the index. The biggest drag was building permits, which subtracted 0.15 percentage point. Permits, which signal future construction, have fallen the last two months as new home sales have cooled.

D.R. Horton Inc., the largest U.S. homebuilder, said this week that earnings rose at the slowest pace in five years in the quarter ended March 31. Net income rose 20 percent to $352.8 million at the Fort Worth, Texas-based builder.

Labor Market

Average weekly jobless claims also subtracted from the index last month. Claims averaged 308,800 a week, up from 306,000 a month before. Since then, claims have remained at a level that signals strength in the job market.

Stock prices were among the factors that added to the index. The Standard & Poor's 500 index averaged 1293.7 in March, up from 1276.7 in February, and added 0.05 percentage point to the leading economic indicators gauge.

Other contributors to the measure included vendor performance, which added 0.06 percentage point, and consumer expectations, which added 0.04 point.

Money supply adjusted for inflation, which has the biggest weighting in the index, subtracted 0.01 percentage point.

The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in March after rising the same amount the month before. The index tracks payrolls, incomes, sales and projections.

The group's gauge of lagging indicators rose 0.3 percent after a 0.1 percent increase. 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=10000087&sid=aMXQFUV8Il7w