The Conference Board said Monday that its monthly forecast of economic activity fell 0.3 percent in March and has not risen in nine months. Economists surveyed by Thomson Reuters expected a 0.2 percent decline.
And without the government's intervention in the economy, boosting the money supply and tamping down interest rates, analysts said the forecast likely would have been worse. Stocksas investors worried about the rising levels of bad debt being reported by the nation's biggest banks.
The index is designed to forecast economic activity in the next three to six months based on 10 components, such as stock prices, the money supply, jobless claims, new orders by manufacturers and building permits.
The index for February was better than previously reported, falling 0.2 percent instead of 0.4 percent. But it was revised lower in January to a 0.2 percent decline, instead of a 0.1 percent increase.
"At least now we can see where this thing may end in the next six to 12 months," Ken Goldstein, senior economist at the Conference Board, told CBS News.
"The recession may continue through summer, but the intensity will ease," Goldstein said separately in a release. "There have been some intermittent signs of improvement in the economy in April, but the leading economic index and most of its components are still pointing down."
Dragging the index lower were building permits, stock prices and vendors' deliveries to businesses.
But there were three positive indicators in March, including growth in the real money supply from Federal Reserve programs to pump up the economy. Also pointing higher were the wide "interest rate spread," or difference between the interest rates for 10-year Treasurys and the benchmark federal funds rate - now at a record low of zero to 0.25 percent - and the consumer expectations index.
"We've had a decent run in the past few weeks ... (but) this morning's report throws cold water on the notion that we're turning a corner," said Wachovia economic analyst Tim Quinlan. "It is not real positive news here."
Without the government's cash contributions to the economy, the index would probably be at a substantially worse point, he said.
In March, the government said it would spend $1.2 billion to lower interest rates on mortgages and jump-start lending to consumers and small businesses. It also launched a $787 billion stimulus package that has increased spending on education and earmarked funds for infrastructure development, such as high-speed trains.
"What's important is to realize how much worse it would have been this month, and the last six months, if you had excluded the money supply and yield curve slope," said Josh Shapiro, chief economist at MFR Inc.
In the six months through March, the index fell 2.5 percent, nearly double the 1.4 percent drop in the six-month span through February. But there has been some positive news in the spring.
Stock prices rebounded from their lowest points. Auto sales in March jumped 25 percent from the month before, construction of new homes seems to have stabilized, and earnings from big banks have been better than expected. Bank of America Corp. on Monday became the latest to report a profit that beat analysts' expectations - even as it put up $6.4 billion to cover future credit losses.
On Wall Street, investors were having doubts about banks' profit reports and those worries overshadowed Oracle Corp.'s announcement that it would acquire Sun Microsystems Inc. for $7.4 billion. The Dow Jones industrial average lost more than 252 points, or 3.1 percent, to 7,879 in afternoon trading, and broader indices also fell.
The first place likely to show a real economic recovery will be building permits, said Quinlan, who expects residential construction to turn the corner this summer.
The National Association for Business Economics' latest quarterly survey, also out Monday, showed that while companies and trade associates are more pessimistic about U.S. economic growth, more companies are seeing increased demand for their products. There also was a slight uptick in businesses reporting increased capital spending, but more than half still said they were cutting back, according to the NABE report.
Still, the labor market likely will stay weak and more claims for unemployment insurance helped drag down the Conference Board index.
The Labor Department said last week that while new jobless claims were at the lowest level since late January, people continuing to collect unemployment insurance rose above 6 million for the first time.
Many economists expect the unemployment rate - now at a 25-year high of 8.5 percent - to hit 10 percent by the end of the year.
On Monday, a General Motors Corp. executive said 1,600 white-collar workers willin the next few days as the struggling automaker chops away at the 47,000 worldwide layoffs set to happen this year.