Data suggest recession probably over

Posted 2:10PM on Friday 1st March 2002 ( 23 years ago )

WASHINGTON - U.S. manufacturing activity rose for the first time in 18 months while consumer spending and construction grew solidly, fresh signs that an economy shaken by the recession and the terrorist attacks is on the road to recovery. The latest batch of economic data released Friday suggested the recession, which began a year ago, has probably ended and may be recorded as the mildest in U.S. history. 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 mend, but some health risks still remain. The stock market liked the news. In the first 90 minutes of trading, the Dow Jones industrial average gained 130 points and the Nasdaq index added 34 points. The Institute for Supply Management, formerly known as the National Association of Purchasing Management, reported that its index of business activity jumped to 54.7 in February from 49.9 in January, suggesting the battered manufacturing sector has pulled out of a long slump. An index above 50 signifies expansion, while a figure below 50 shows contraction. The nation's manufacturing sector has been hardest hit by the recession. Factories have sharply cut production and let workers go. In a second report, consumer spending, which accounts for two-thirds of all U.S. economic activity, rose 0.4 percent in January after being flat in December, 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. Incomes rose 0.3 percent in December. In another good sign for the economy, spending on construction projects rose 1.5 percent in January, the biggest gain in a year. Spending by government on big projects, such as highways and schools, posted the largest gain. Commercial construction by private companies grew solidly, while investment in home building edged up. Construction spending, which rose by 0.5 percent in December, has held up fairly well during the slump, aided by low interest rates. More recently, mild weather also has played a factor in 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. That's because consumers kept buying throughout the slump and they will have less pent-up demand. That means spending probably won't rise as quickly as in past rebounds, making the recover less robust than usual, Greenspan and other economists said. Nonetheless, some economists are predicting the economy, as measured by the gross domestic product, could grow by as much as 3.5 percent, on an annualized basis, in the January-March quarter. The government reported Thursday that the economy grew by a faster-than-expected 1.4 percent rate in the final three months of last year. Analysts were amazed by that turnaround, given that the economy, jolted by the Sept. 11 attacks, shrank at a 1.3 percent rate in the third 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 still 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 say. 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. Incomes were boosted in part by cost-of-living adjustments to retirees' Social Security checks as well as some other benefits payments from the federal government. Disposable incomes - income after taxes - went up 1.6 percent in January, after rising 0.2 percent in December. The January rise largely reflects the impact of lower federal income taxes. Because disposable incomes rose more quickly than spending in January, the nation's personal savings rate - savings as a percentage of after-tax income - was lifted to 1.8 percent from 0.6 percent in December.

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