Index Suggests Economy Weakening

A gauge of future economic activity dropped in February for the fifth consecutive month, suggesting that the weakening U.S economy could, indeed, be slipping into recession.

The Conference Board said Thursday that its index of leading economic indicators fell 0.3 percent last month to 135.0 after dipping a revised 0.4 percent in January.

The February reading was in line with the 0.3 percent decline expected by analysts surveyed by Thomson Financial/IFR.

The index is designed to forecast where the nation's economy is headed in the next three to six months.

Many economists believe rising gas prices, falling home prices and tightening credit markets have begun squeezing consumers and businesses, forcing them to cut spending. As a result, the U.S. economy may have stopped growing in the current quarter and could continue faltering in the second quarter. That would meet a technical definition of a recession _ two consecutive quarters of negative growth.

Ken Goldstein, labor economist at the Conference Board, said in a statement accompanying the report that economic signals "are flashing yellow."

He said the numbers indicate "the economy may be grinding to a halt" and that "a small contraction in economic activity cannot be ruled out."

A further sign of economic deterioration came as the Labor Department reported that the number of newly laid off workers filing for unemployment benefits rose last week to the highest level in nearly two months. But a Federal Reserve reading of business activity in the Philadelphia area was not as bad as analysts had expected.

Share prices were up on Wall Street, where the Dow Jones industrial average advanced 112.43, or 0.9 percent, to 12,212.09 in morning trading.

Although many analysts believe the economy is faltering now, they don't expect a steep recession.

Scott Brown, chief economist with Raymond James & Associates in St. Petersburg, Fla., noted that "most of the monthly indicators have been suggesting we're on the edge of a recession."

He expects economic growth could be "close to zero, maybe negative" in the first half of the year but that output likely will improve in the second half.

The Fed in recent months has aggressively lowered interest rates to try to boost spending; it also has made more funds available to banks and brokerages to encourage easier credit. And the Bush administration has been moving on several fronts to boost the economy, including the promise of tax rebates starting the summer.

"It will take some time before the Fed rate cuts since January to have an effect on the economy," Brown said. And the rebates and other fiscal stimulus are likely to kick in this summer, he added.

The Conference Board said the leading index has declined 1.5 percent since August, with eight of its 10 components showing declines.

In the latest month, the biggest negative influences were unemployment insurance claims, building permits, vendor performance and consumer expectations.

The coincident index, which measures current activity, was unchanged for a third consecutive month at 124.9. The lagging index was up 0.2 percent in February after rising 0.1 percent in January.

The ratio of the coincident index to the lagging index _ a measure of future economic performance that some economists monitor _ dipped just a bit in December as it has every month since August.

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