April 19 (Bloomberg) -- The index of leading economic indicators rose 0.3 percent in March and had its greatest year-on- year increase in two decades as the U.S. expansion gained momentum.

Companies took longer to fill orders in March, showing an increase in demand, while jobless claims fell, building permits rose and tax refunds put more money in the hands of consumers. The indicators helped push up the Conference Board's index, which was unchanged in February after 10 consecutive increases.

The increase suggests that economists may need to reconsider their projections for growth in the second quarter. The economy is forecast to expand 4.3 percent at an annual rate this quarter, compared with 4.4 percent in January-March, according to the median forecast in the most recent monthly Bloomberg News economist survey. For the year, growth may average 4.6 percent, the fastest since 1984, according to the survey.

``We have good momentum going into the second quarter,'' said Chris Wiegand, an economist at Citigroup Global Markets Inc. in New York. ``We should be around 5 percent'' this quarter. ``We are going to continue to see above-trend demand growth in the next couple of quarters.''

The New York-based Conference Board's index attempts to show how the economy will perform over the next three to six months. Even with the pause in February, the index was up 4.4 percent from a year earlier, the most since a 4.6 percent rise in the year that ended with April 1984.

3M Co.

Company profits growing with the improved economy. 3M Co., the maker of Scotch tape and a range of newer products, said today that first-quarter earnings rose 44 percent, boosted by more sales of safety equipment and television screens. Sales in the U.S. increase 4.2 percent from the same quarter last year.

Chief Financial Officer Patrick Campbell said productivity gains are allowing St. Paul, Minnesota-based 3M to meet demand. ``We're hiring in the U.S. on a selective basis,'' Campbell said during a conference call with analysts and investors.

The U.S. added 308,000 jobs in March, the most in four years, after gains of 46,000 and 159,000 in the previous two months. President George W. Bush, 57, is seeking re-election amid criticism from Democratic challenger John Kerry, 60, about the loss of about 1.8 million jobs since Bush took office.

The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in March after a 0.3 percent increase the previous month. The index tracks payrolls, incomes, sales and production. The index of lagging indicators fell 0.1 percent last month, matching the previous month's drop.

Further Increases Ahead

Economists had projected a 0.3 percent increase in the leading index, based on the median of 53 forecasts in a Bloomberg News survey. The 10 consecutive increases before February were the most since an 11-month stretch that ended in July 1983.

``There is every reason to expect further increases in the months ahead,'' Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said.

The 10-year U.S. Treasury note rose for a second day in New York on speculation that the Federal Reserve is less likely than previously thought to increase the benchmark interest rate as soon as next quarter. Reports this month showing a surge in retail sales, unexpectedly large job gains and a bigger-than-forecast rise in consumer prices in March had led some investors to anticipate a rate increase by September.

Comments last week from Fed Governor Ben S. Bernanke and Richmond Fed President Alfred Broaddus suggest the central bank wants more proof inflation is accelerating before lifting the overnight bank lending rate from 1 percent, almost a 46-year low, where it has been since June.

The 4 percent note maturing in 2014 rose almost 1/32 point, leaving the yield unchanged at 4.33 percent as of 11:31 a.m. in New York.

Breakdown in Indicators

Six of the 10 indicators the Conference Board uses to derive the leading index contributed to the rise, and four made negative contributions.

New orders for consumer goods and a rise in consumer expectations joined the rise in building permits, slowdown in delivery times, drop in jobless claims and increase in money supply in accounting for the increase. Longer delivery times indicate that manufacturers are having trouble keeping up with orders.

A narrowing of the spread in the yield between the Treasury's 10-year note and the overnight bank lending rate, a drop in manufacturing hours, lower stock prices and a decrease in orders for capital goods restrained the rise.

Money Supply

The money supply measure tracked by the Conference Board averaged $5.78 trillion in March compared with $5.76 trillion a month earlier. That measure includes checking accounts, time deposits, mutual funds and other accounts from which funds can be easily accessed.

The money supply carries the second most weight in compiling the index. The yield curve, or the spread between short- and long- term interest rates, is the most influential.

Purchases at retailers rose 1.8 percent last month, the most since March 2003, the Commerce Department reported last week. The gain led some economists to raise first-quarter growth forecasts.

The economy probably expanded at a 4.6 percent annual pace from January through March, according to a forecast from Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. Before the retail sales figure, Stanley had forecast a 4 percent growth rate for the first quarter.

Retailers

Wal-Mart Stores Inc., J.C. Penney Co. and Target Corp. said earlier this month that March sales were stronger than expected as shoppers spent tax refunds and demand for spring clothing surged. Wal-Mart, the world's largest retailer, said sales at U.S. stores open at least a year increased 6 percent from a year earlier, at the top of their forecast. J.C. Penney said department-store sales surged 11 percent. Target reported a 7.3 percent increase.

Taxpayers received $142.5 billion in refunds through April 2, compared with $131.4 billion at the same time last year, according to figures from the Internal Revenue Service. The latest figures out Wednesday showed refunds totaled $153 billion through April 9 compared with $142 billion at the same time last year.

The economy is projected to expand 4.6 percent this year, the most since 1984, according to the median estimate in a Bloomberg News survey this month.

To contact the reporter on this story: Carlos Torres in Washington ctorres2@bloomberg.net.

Last Updated: April 19, 2004 11:43 EDT