Two key indicators released Thursday continue to confirm a U.S. economy in the midst of a pronounced recession -- the nation's worst contraction in decades.

The Index of Leading Economic Indicators fell -0.4 percent in February on declines in employment and industrial production, The Conference Board announced Thursday. Further, January's monthly LEI increase was revised lower, as well, on softer revised new orders and real money supply. The LEI increased 0.3 percent in December 2008.

What's more, the LEI has fallen 2.1 percent in the previous six months, a faster rate of decline than the -1.6 percent recorded for the six months prior to that -- a deterioration that reflects the slowdown in the U.S. economy that nearly all sectors have experienced in the Q4 2008 / Q1 2009 period. The LEI has basically trended down since July 2007, roughly five months before the U.S. recession started in December 2007.

Economists surveyed by Bloomberg News had expected the index to decline 0.6 percent in February. The LEI now stands at 98.5 (base year 2004 = 100).

The LEI index is designed to forecast likely economic conditions six to nine months out, although economists caution that the LEI is a general, multi-variable indicator, vulnerable to revisions. Hence, use it as a rough gauge of overall macroeconomic trends -- not as a metric that precisely pinpoints economic cycle turns.

Philly indicator still shows deep slump

Separately, the U.S. economy showed a slight improvement in another closely watched indicator, the Federal Reserve Bank of Philadelphia's Manufacturing Survey, commonly known as the Philly Fed Survey, which rose to a -35 in March from a -41.3 in February. However, investors should keep in mind that readings below zero indicate a contraction and the Philly Fed Survey has been negative for 15 of the last 16 months -- also indicative of a pronounced recession.

Economists surveyed by Bloomberg News had expected a -38 March reading for the Philly Fed Survey.

Rex Nutting, veteran Washington bureau chief for marketwatch.com, is in the camp that says that given the severity of the U.S. contraction and the prospect of further deterioration as evidenced by the latest LEI and Philly Fed data, the Federal Reserve's biggest risk involves doing too little, not too much.

"Why would the Fed want to push more money into the economy? Simply, the outlook for the economy has deteriorated since January," Nutting said Thursday. "The global economy is slumping and the U.S. economy is weak. It's no time for half measures, or grandstanding about how unfair it is that a few hundred people are getting bonuses."

Six of ten indicators that comprise the LEI increased in February: interest rate spread, index of supplier deliveries (vendor performance), building permits, real money supply, manufacturers' new orders for consumer goods and materials, and manufacturers' new orders for non-defense capital goods. Four decreased: average weekly initial claims for unemployment insurance, stock prices, the index of consumer expectations, and average weekly manufacturing hours.

Economic Analysis: The view from here argues that one disagrees with Bureau Chief Nutting's evaluation of the Fed's policy and his read on the economy at one's peril. This economy sorely needs the extra stimulus the Fed will supply from its expanded quantitative easing policy. The money supply is expanding, we have $787 billion in fiscal stimulus working its way into the system, President Obama has announced a mortgage refinance program, and the U.S. Treasury is expected to announce a plan to deal with toxic assets: hopefully, all of these actions will both stabilize credit markets and jump-start demand by late Q3 / early Q4 of this year, with future LEI stats reflecting that.

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