Economic signs continue to improve

Posted 10:01AM on Saturday 2nd March 2002 ( 22 years ago )

WASHINGTON - Consumers are spending more freely, and for the first time in 18 months a key gauge of manufacturing is flashing a growth signal, fresh signs that a country bruised by recession and terrorist attacks is on the mend. The latest batch of economic reports, released Friday, were greeted with enthusiasm on Wall Street. The Dow Jones industrial average enjoyed its biggest one-day gain in five months, soaring 262.73 points, or 2.6 percent, to close at 10,368.86. Private economists said the new economic numbers indicated the recession probably has ended and will be recorded as one of the mildest in U.S. history. ``With this mounting evidence of economic recovery, we are confident the recession has ended and expansion is under way,'' said Richard Yamarone, economist with Argus Research Corp. The reports are consistent with the cautiously upbeat economic assessment Federal Reserve Chairman Alan Greenspan provided to Congress on Wednesday. His message: The country is on the road to recovery, but there still are some possible potholes. After being flat in December, consumer spending, which accounts for two-thirds of all U.S. economic activity, rose 0.4 percent in January, the Commerce Department said. At the same time, Americans' income, including wages, interest and government benefits, also increased by 0.4 percent, the largest advance in six months, providing the fuel for spending in the future, economists said. Income growth in January, which followed a 0.3 percent rise in December, in part reflected cost-of-living adjustments to retirees' Social Security checks as well as some other benefits payments from the federal government. ``The consumer is showing no signs of letting up and with income rising as well we should expect that to continue,'' said Joel Naroff of Naroff Economic Advisors. In more good news, the Institute for Supply Management, formerly known as the National Association of Purchasing Management, reported that its index of business activity for the first time in 18 months moved up into a zone that signifies growth. The group's index jumped to 54.7 in February from 49.9 in January, suggesting the battered manufacturing sector, hardest hit by the recession, is pulling out of a long slump. An index above 50 signifies expansion, while a figure below 50 shows contraction. That news, along with a government report earlier this week showing orders to U.S. factories for big-ticket items rose a bigger-than-expected 2.6 percent in January, indicate that ``the manufacturing recession is coming to an end,'' said National Association of Manufacturers President Jerry Jasinowski. Momentum is building for a manufacturing turnaround in the early months of 2002, he said recently. To deal with the slump, factories have throttled back production, temporarily closed plants and shed many workers. In another good sign for the economy, spending on construction projects rose 1.5 percent in January, the biggest gain in a year, after advancing 0.5 percent in December. Construction spending has held up fairly well during the slump, aided by low interest rates. More recently, mild weather also has been a factor in the stronger activity. While the latest reports suggest the economy is heading in the right direction, Greenspan and some other analysts have cautioned that Americans shouldn't expect a red-hot rebound. Because consumers kept buying throughout the slump, they will have less pent-up demand. That means spending probably won't rise as quickly as in past rebounds, making the recovery less robust than usual, Greenspan and other economists said. Nonetheless, some economists are predicting the economy, which grew at a 1.4 percent rate in the fourth quarter of 2001, could grow by as much as 3.5 percent, on an annualized basis, in the January-March quarter. Even though consumers opened their pocketbooks and wallets more in January, they were still selective shoppers. Consumers cut spending on big-ticket goods, including cars, by 2.1 percent in January, but this still was an improvement over the 3.7 percent reduction in December. Some of the belt-tightening reflects the waning of free financing and other incentives on new cars and trucks, analysts said. For nondurable goods, such as food and clothes, consumers increased their spending by 1.2 percent in January, on top of a 0.8 percent rise in December. Many retailers have discounted merchandise in an effort to motivate buyers. Spending on services rose by 0.5 percent for the second month in a row.

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