- The Washington Times - Saturday, December 29, 2001

The nation's economic outlook brightened with the release of reports yesterday showing a surge in confidence and home sales and a rebound at manufacturers hit hard by the recession.
The Conference Board a private economic research group in New York said its consumer confidence index this month posted the biggest increase in nearly four years and landed at a level associated with expansion rather than recession. The more upbeat mood among the nation's consumers was spurred by small improvements in the job market and a big increase in optimism that the economy will recover next year.
"Consumers are under no illusions that things are great right now, but they expect things to turn around pretty quickly and are looking for a happy new year," said William Cheney, chief economist with John Hancock.
Economists note that an increase in confidence among consumers, who fuel two-thirds of economic activity, can be self-fulfilling because it spurs them to spend more on homes, cars and other items. Their increased spending, in turn, causes a pickup in economic growth.
But analysts caution that the economic improvements seen in recent weeks are only tentative and could be reversed easily.
New claims for unemployment benefits, for example, have declined to levels of about 400,000 in recent weeks after shooting up to more than 500,000 in the wake of the September 11 terrorist attacks. But companies have continued to issue layoff notices at a rate that points to further increases in unemployment next year. Yesterday, Oracle Corp. and Deutsche Bank announced 3,000 job cuts.
Also, new jobs remain hard to find. A measure of help-wanted advertising, published by the Conference Board, has fallen by half in the last year to the lowest levels in decades, and employment counselors report that laid-off workers are finding that it takes five months on average to get a job.
Nonetheless, according to Bill Dudley, chief economist at Goldman, Sachs & Co, "People are more optimistic about recovery, and when people are optimistic about a recovery, a recovery is more likely."
Mr. Dudley expects a recovery by spring but said, "We think it won't be as strong as some people think. The jobless rate will gradually drift up."
One sign of recovering confidence was a surge in home sales last month as consumers put aside job worries and took advantage of the mild weather and record-low mortgage rates to purchase homes. New-home sales soared by 6.4 percent, and existing-home sales rose by 0.6 percent, producing a record combined annual sales rate of 6.14 million.
"Despite the recession, all the major factors necessary for a strong housing market low interest rates, strong household formation and relatively low unemployment are continuing to create favorable market conditions," said David Lereah, chief economist at the National Association of Realtors.
The average 30-year mortgage rate hit a record low of 6.45 percent in early November before climbing back over 7 percent this month. The enticement of such low rates has been particularly strong for first-time home buyers, the real estate agent group said.
While consumers appear on the verge of recovering from what would be one of the briefest consumer recessions in history, the nation's manufacturers also are enjoying a rare rebound from a yearlong recession that has been among the most severe in decades.
A report from the Commerce Department yesterday found a second straight monthly increase in orders for big-ticket manufactured goods such as machinery, computer equipment, electrical equipment, autos and other non-defense goods.
Most notable was a 4.5 percent jump in orders for motor vehicles after October's 11 percent gain, suggesting that auto dealers cleared out most of their inventories with their free financing offers and that factories are poised to start ramping up production again. Technology orders also made solid gains after a dramatic slump in the past year.
A drop in orders for military aircraft pulled orders overall down by 4.8 percent, but analysts said that was only a partial pullback from the 221 percent surge in such defense orders seen in October as the Pentagon geared up to fight terrorism.
The solid increases outside defense and transportation are the best sign yet that "the manufacturing sector has turned the corner," said Mark Vitner, vice president of Wachovia Securities. But he added that orders remain 2.6 percent below their levels in August.

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