Economy Shows Signs Of Springing Back
Modest-but-steady pace of growth indicates an end to recession; some sectors may lag
BOSTON — THE first robins of a more-vigorous recovery are hopping on the economic lawn of the United States.
The latest statistics have stirred hopes among economists:
* The Commerce Department's leading indicators, designed to predict turns in the economy, rose 0.9 percent in January after two straight monthly declines.
* A February survey of purchasing executives at more than 300 manufacturing companies found a surge in orders for new business. Production levels at these companies also rose sharply in February, according to the National Association of Purchasing Management's monthly survey. The Commerce Department noted Wednesday that orders to US factories rose 0.4 percent in January.
* Sales of new homes soared 12.9 percent in January, the steepest gain in a year, though sales of existing homes declined 1.5 percent.
* Spending on residential, nonresidential, and government construction projects jumped 1.3 percent in January.
* Retail sales rose 0.6 percent in January. Auto sales in the first 20 days of February were the strongest since last July.
* The nation's money supply has been growing more rapidly in recent months, giving the economy more fuel to expand.
* Stock prices are reaching new highs. Despite all the talk of a credit crunch, the financial markets raised a total of $512 billion in new money last year, of which $55 billion was in equity (new corporate shares). Modest pace of recovery
"We are over the correction," concludes David Hale, chief economist of Kemper Financial Services Inc. in Chicago. Like most economists, however, Mr. Hale anticipates a modest recovery pace compared with the early stages of previous economic expansions.
At economic turning points, the view is usually blurred by mixed statistical signals. For example, most economists expect the civilian unemployment rate, when the February figure is reported by the Bureau of Labor Statistics today, to show a rise to 7.2 percent from 7.1 percent a month earlier.
Companies are still announcing staff reductions. Digital Equipment Corporation announced this week it will offer early retirement to 7,000 employees in addition to previously announced reductions. Consumers increased their spending in January a lackluster 0.2 percent and their incomes actually fell by 0.1 percent. Industrial production fell 0.9 percent in January.
Further, the public has a gloomy opinion on the economy. A New York Times/CBS News poll found that 82 percent of those quizzed say the economy is either "fairly bad" or "very bad." The Conference Board's February index of consumer confidence fell precipitously to 46.3 from 50.2 in January 1992 and 59.4 in January 1991. That was the lowest level since December 1974. Employment increases
But says Patrick Corcoran, an economist with the Prudential Insurance Company of America, weak consumer confidence is an accurate predictor of the economy only when it is matched by a downturn in the stock market. He forecasts growth in national output at a 3 percent annual rate in the first half and 4 percent in the second half.
Michael Cosgrove, a University of Dallas economist, agrees on the second half, but anticipates a slower first half.
"This is good enough to make the economy feel better for most people," he says.
Washington's official view is that stronger recovery is ahead. Alan Greenspan, chairman of the Federal Reserve Board, in testimony to Congress Tuesday, said he was encouraged that the economy is rebounding, including an apparent "strengthening of late in the money supply."
A concern of Paul Kasriel, an economist with the Northern Trust Company in Chicago, is that bank and thrift closings in the months ahead by the government's Federal Deposit Insurance Corporation and the Resolution Trust Corporation could take money out of the economy and thereby slow business activity again. He has called on the Fed to put high priority on hitting its monetary growth targets.
Hale, of Kemper, sees another hazard for the economy: "Since the household sector is now factoring a tax cut into its own income expectations, failure of the Congress and the White House to agree on a tax bill would probably have an adverse impact on growth during the second and third quarters." Mr. Greenspan, in his congressional testimony, sought to talk long-term interest rates down by noting that inflation is moving lower.