Leading Indicators in U.S. Probably Rose in March on Fed Action

The index of leading U.S. economic indicators probably rose in March as cash poured into the banking system and the Federal Reserve lowered the benchmark interest rate, economists said before a report today.
The Conference Board's gauge increased 0.1 percent, the first gain in six months, after falling 0.3 percent in February, according to the median forecast in a Bloomberg News survey of 54 economists. 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 would indicate the Fed's rate reductions and efforts to ease the credit crisis may help mitigate the damage from the slump in subprime lending.
``A rise in the money supply should have cushioned the blow from some of the other components of the index,'' said Aaron Smith, an economist at Moody's Economy.com in West Chester, Pennsylvania. The report points toward economic ``weakness that is mild in nature.''
The New York-based Conference Board, a private research group, is scheduled to issue the report at 10 a.m. Survey estimates ranged from a decline of 0.3 percent to a 0.4 percent gain.
Also at 10 a.m., the Philadelphia Fed will release its regional manufacturing gauge. Economists surveyed by Bloomberg News project the index will rise to minus 15 from minus 17.4 in March, signaling a slower pace of contraction. A similar report from the New York Fed earlier this week unexpectedly showed a return to growth.
Factory Improvement
The manufacturing components of the leading index probably contributed to the projected gain in March. The factory workweek rose by 6 minutes to 41.3 hours last month, according to Labor Department figures, and the Institute for Supply Management's measure of supplier deliveries also improved.
Seven of the 10 economic indicators that make up the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory hours.
The Conference Board estimates the remaining three -- new orders for consumer goods, bookings for capital equipment and the money supply.
The financial components helped push the leading index higher. The biggest contributor was probably the money supply as investors poured the cash from sales of stocks and securities such as subprime-mortgage instruments into money-market funds.
Fed Action
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 Labor Department report today, due at 8:30 a.m., is projected to show initial jobless claims rose last week to 375,000 from 357,000 the prior week, according to the median estimate in a Bloomberg News survey of economists.
More Firings
Initial jobless claims, consumer expectations about the economy and building permits are among the components projected to detract from the leading index.
Economists surveyed by Bloomberg News earlier this month forecast the economy will not grow at all in the first half of the year. A majority of those polled projected the U.S. is, or will 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.
JPMorgan Chase & Co., the third-biggest U.S. bank, yesterday reported a 50 percent drop in first-quarter profit on $5.1 billion of writedowns and provisions.
Chief Executive Officer Jamie Dimon, said on a conference call with reporters that the credit-market crisis is more than halfway finished as financial firms reduce leverage, and may be as much as 80 percent over.
``That side is working itself out,'' Dimon said. ``That doesn't mean the recession won't get worse or better.''