Economic forecast index retreats

NEW YORK (CNNMoney.com) -- A index forecasting economic activity fell in February, ending two months of surprise increases, after the government took action to inject money into the ailing financial system.

The index of leading economic indicators fell 0.4%, according to the Conference Board. The reading is intended to predict economic activity in the next 3-6 months.

Analysts were expecting a drop of 0.6%, according to a consensus of economists surveyed by Briefing.com.

The index rose unexpectedly in the prior two months. A revised uptick of 0.1% in January (correct) followed a jump of 0.2% in December.

The measure is based on 10 components, six of which increased in February: interest rate spread; index of supplier deliveries; building permits; real money supply; manufacturers' new orders for consumer goods and materials; and manufacturers' new orders for nondefense capital goods.

Some of those six indicators enjoyed surprising upticks in recent economic data.

Housing starts unexpectedly surged 22% February, after falling for eight months. It was the first time housing starts increased since June.

Declines: The remaining four components declined: average weekly initial claims for unemployment insurance; stock prices; index of consumer expectations, and average weekly manufacturing hours.

The components in decline aren't surprising after a slew of negative reports.

The number of people filing initial claims for unemployment benefits fell slightly last week, but continuing claims hit a fresh record high of more than 5.47 million.

The unemployment rate is up to 8.1%, the highest level in 25 years.

Stock prices rallied last week, but the Dow Jones industrial average is still down almost 50% from its peak in October 2007. Consumer confidence fell to a three-month low in February.

Fed takes action: The Federal Reserve in recent months has taken several steps to boost the financial system.

The Fed said Wednesday said it would spend up to $300 billion over the next six months to buy long-term Treasurys, a move designed to free up credit.

The Fed also announced plans to buy an additional $750 billion in mortgage-backed securities in an attempt to lower mortgage rates. The benchmark lending rate remained unchanged, as it was already at a record-low range of 0-0.25%.

It's hoped that these actions will inject liquidity into the credit markets and spark lending.

-- An earlier version of this story did not note the January revision. CNNMoney.com regrets the error.