March 20 (Bloomberg) -- The index of leading U.S. economic indicators fell in February for a fifth straight month, reflecting mounting signs that a recession has begun.

The Conference Board's gauge, which points to the direction of the economy over the next three to six months, declined 0.3 percent after decreasing 0.4 percent in January, more than previously estimated. The last two times the index dropped for as many months correlated with a shrinking economy.

``It looks like we are in a recession,'' Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, said in a Bloomberg Television interview. ``The economy was probably stagnant in the first quarter and it looks like things got worse at the end of the quarter.''

The leading index dropped as building permits, stock prices and consumer sentiment sank and first-time claims for jobless benefits jumped. Federal Reserve policy makers this week said risks to growth remain even after lowering the benchmark interest rate and making billions of dollars available to banks and securities firms to try to stabilize financial markets.

Economists forecast the index would fall 0.3 percent, according to the median of 59 economists in a Bloomberg News survey. Projections ranged from a decline of 0.7 percent to a gain of 0.2 percent.

Last month's drop in the index brings the decline for the last six months to 3 percent annual pace from a revised 4.6 percent pace in January. A drop of 4.5 percent or more over six months usually correlates with a recession, according to economists at the Conference Board.

`Grinding to a Halt'

``The economy may be grinding to a halt,'' Ken Goldstein, a Conference Board economist, said in a statement. ``A small contraction in economic activity cannot be ruled out.''

Reports so far this month signal the leading index may keep falling. The number of Americans initially claiming unemployment benefits rose to 378,000 last week, matching a two-year high, according to a report today from the Labor Department. Total benefit rolls swelled to the highest level since August 2004.

Manufacturing in the Philadelphia region contracted in March for a fourth month, a Fed report today also showed. The Fed Bank of Philadelphia's general economic index improved to a minus 17.4 from minus 24 in February. Readings less than zero signal contraction.

Commodity Prices

Commodity prices continued to drop today as concern mounted a U.S.-led slowdown in the global economy would reduce demand for raw materials. Crude oil fell below $100 a barrel for the first time in two weeks. Stocks and the dollar were higher.

Five of the 10 indicators in today's report subtracted from the index, led by the decline in building permits and increase in jobless claims, which both subtracted 0.22 percentage point.

Permits, a sign of future construction, fell 7.8 percent in February to an annual pace of 707,000, the lowest level in more than 16 years, the Commerce Department said on March 18.

A drop in consumer expectations, faster supplier deliveries and lower stock prices were the other negative components.

``Downside risks to the economy remain,'' Fed policy makers said in a March 18 statement announcing the central bank lowered its target for the benchmark rate by three-quarters of a point to 2.25 percent. The Fed has cut the rate by three percentage points since September.

On March 16, the central bank also lowered the rate on direct loans to banks and said it will provide up to $30 billion to JPMorgan Chase & Co. to help finance the purchase of Bear Stearns Cos. after a run on the fifth-largest U.S. securities dealer.

Extended Slump

The economy expanded at a 0.6 percent pace in the fourth quarter, matching the slowest rate of growth since 2002, according to figures from the Commerce Department. Growth is projected to slow to a 0.1 percent pace from January though March, accord to the median estimate of economists surveyed by Bloomberg News earlier this month.

The slump is likely to extend through the middle of the year, according to a forecast issued today by the Paris-based Organization for Economic Cooperation and Development. The world's largest economy will probably not grow at all in the second quarter, the agency said.

Harvard University economist Martin Feldstein said last week that he believed a recession was under way and it could be the most severe since World War II. Feldstein is a member of the National Bureau of Economic Research's committee that officially declares when a recession has started.

Recession Signal

Among the components the NBER committee looks at to determine whether a recession has occurred are the four measures in the Conference Board's index of coincident economic indicators: real incomes, employment, industrial production and business sales. That gauge was unchanged in February, according to today's report.

``You have an economy that really is in a tailspin, and many would say the consumer is in a recession,'' Howard Schultz, chief executive officer of Starbucks Corp., the world's largest chain of coffee shops, told shareholders yesterday. Seattle- based Starbucks has seen a decline in customers.

The lagging indicators index rose 0.2 percent in February, following a 0.1 percent gain the prior month. The gauge measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: March 20, 2008 10:19 EDT