Oct. 18 (Bloomberg) -- The index of leading U.S. economic indicators rose in September as stocks climbed and fewer Americans lost their jobs.

The Conference Board's index gained 0.3 percent, matching analysts' predictions, the New York-based group said today. The drop in August was revised to 0.8 percent, bigger than previously estimated. The measure points to the direction of the economy over the next three to six months.

The report reinforces forecasts by economists that the two- year housing slump will slow the economy without undoing the expansion that began in 2001. The Standard & Poor's 500 Index recorded its biggest September increase in almost a decade after the Federal Reserve was forced to cut interest rates in response to the previous month's credit-market rout.

``It isn't sending a message of impending economic collapse, but it's not a strong message either,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. ``We are going to see pretty painfully slow growth this quarter and next.'' Shapiro accurately forecast the increase.

A separate report from the Philadelphia Federal Reserve Bank today showed the pace of manufacturing growth in the area cooled in October. The bank's general economic index fell to 6.8 from 10.9 in September. Readings greater than zero signal expansion.

The economy will grow 2 percent this year, the least since 2002, and will expand 2.5 percent next year, according to a Bloomberg News survey of economists. Those forecasts compare with growth of 2.9 percent in 2006, and an annual average 3.2 percent increase during the last 10 years.

Fed Policy

The Fed on Sept. 18 lowered its benchmark rate by a half point to 4.75 percent, the first cut in four years, lifting the Standard & Poor's 500 almost 3 percent that day. The S&P averaged 1497.1 in September, up from 1454.6 in August. Stocks rose to a record this month.

The rise in the S&P added 0.11 percentage point to leading indicators.

First-time applications for jobless benefits, which fell to a weekly average of 313,300 in September from 323,200 in August, also contributed 0.11 percentage point to the leading index. The Labor Department said earlier this month that payrolls rose in September by 110,000, and August payrolls were revised from a loss to a gain of 89,000.

Claims last week jumped by a greater-than-forecast 28,000 to 337,000, the Labor Department reported today. The increase, the biggest since February, raised concern the job market was softening.

Sentiment Improved

A gain in the Reuters/University of Michigan consumer expectations gauge added 0.01 percentage point.

Leading indicators is a compilation of economic statistics that have been previously published, making the report less useful for economists.

Seven of the 10 economic indicators that make up the 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 money supply, new orders for consumer goods and orders for non-defense capital goods. Money supply adjusted for inflation, which has the biggest weighting in the index, contributed 0.08 percentage point.

Subtracting From Index

Building permits subtracted 0.2 percentage point from the leading indicators index. Permits, a sign of future construction, fell 7.3 percent to a 1.226 million pace, the lowest since 1995.

Economists still expect declining home prices and tougher lending standards to weigh on consumer spending this quarter.

Target Corp., J.C. Penney Co. and Nordstrom Inc. reported September sales that were lower than analysts estimated and reduced their profit forecasts. September sales climbed 1.7 percent, the International Council of Shopping Centers said Oct. 11. The figure is the smallest since same-store sales dropped in April, and was less than half the gain of September 2006.

Housing will be a ``significant drag'' on the economy into next year, Fed Chairman Ben S. Bernanke said in a speech in New York on Oct. 15.

The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in September after increasing 0.1 percent in August. The index tracks payrolls, incomes, sales and projections.

The gauge of lagging indicators increased 0.5 percent after rising 0.3 percent in August. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

To contact the reporter on this story: Joe Richter in Washington at Jrichter1@bloomberg.net

Last Updated: October 18, 2007 12:13 EDT