President Bush told Congress yesterday that the nation’s economic growth remains “unacceptably slow” but that the outlook is promising. His economic advisers forecast a rebound by the middle of the year.
Mr. Bush made his comments as the Commerce Department reported that after falling by 4.3 percent in November, orders to U.S. factories for manufactured goods rose by 1.2 percent in December, the second increase in the past three months.
Manufacturers have been in a slump for the past year and a half and have been hardest hit by the recession that struck the national economy in March. To cope, they have sharply cut production, trimmed hours and laid off workers. Last year, factories shed 1.3 million jobs, or about 7 percent of their work force.
But yesterday’s report “suggests that the manufacturing recession has bottomed and the light at the end of the 18-month-long tunnel is getting brighter,” said Richard Yamarone, an economist with Argus Research Corp.
Mr. Bush’s Council of Economic Advisers predicted a return to moderate growth of 3.1 percent and tame inflation of 2.3 percent to 2.4 percent for most of the next decade.
Unemployment, which was 5.6 percent in January, down from a 5.8 percent six-year-high the previous month, will rise and peak at 6 percent by the middle of the year, then slowly decline to 5 percent by 2005 and 4.9 percent by the end of the decade, said the forecast.
The Commerce Department said stronger demand for semiconductors, household appliances and machinery helped lift factory orders in December, suggesting the nation’s beleaguered manufacturers may be coming out of their long slump.
The latest snapshot of industrial activity, taken with other recent data, indicates the worst of the recession may be over for manufacturers, economists said.
The Institute for Supply Management reported last week that its index of business activity edged higher in January. The government reported last week that durable-goods orders to factories rose by a bigger-than-expected 2 percent in December.
“While I would not bet the house on a manufacturing recovery in the first quarter, the odds are clearly moving in that direction,” said David Huether, chief economist for the National Association of Manufacturers. “Since we are in an investment-led recession, the outlook for durable goods is a reliable indicator of the path of recovery.”
Before manufacturing can fully recover, though, businesses will have to crank up investment again and foreign companies and consumers must increase their spending on American-made goods, which would boost U.S. exports, economists said.
“For the factory sector to really get moving again, we have to have a renaissance of business investment, which tends to lag the economy and doesn’t tend to suddenly spring to life,” said economist Clifford Waldman of Waldman Associates.
On Wall Street, stocks moved lower as investors feared that other companies might be vulnerable to bookkeeping scandals like Enron’s. The Dow Jones Industrial Average closed down 1.66 points at 9,685.43.
In December, orders for the category that includes computers and electronics products rose by 3.1 percent, on top of a 0.8 percent gain in November.
After falling by 3.7 percent in November, semiconductors posted a strong 12.7 percent increase, a good sign for the high-tech sector, which took a big hit when companies scaled back capital spending in response to the economic slump.
Orders for household appliances rose by 2.8 percent in December, following a 6.3 percent advance; orders for electrical lighting equipment rose 2.5 percent after falling 7.4 percent in November. Orders for machinery increased 0.8 percent, on top of a 2 percent rise in November.
For transportation equipment, orders grew by 3.6 percent, after plunging by 20 percent the month before. December’s increase was mostly due to orders for missiles and space equipment, the government said. Orders for cars dipped by 0.2 percent in December as free financing and other incentives waned.
Excluding the volatile transportation sector, which includes such expensive items as airplanes and military tanks, orders rose by a solid 0.8 percent in December. Orders for nondefense goods grew by 1 percent, the third increase in the past five months.
The Federal Reserve, citing signs of an economic rebound, left interest rates unchanged last week. The central bank cut short-term rates 11 times last year, pushing down the prime rate a benchmark for consumer and business loans to its lowest point since November 1965.
Many economists say those rate reductions will allow the country to return to a healthy rate of growth in the second half of this year.
Still, as evidence of just how much damage has been inflicted on the manufacturing sector, the Commerce Department said that for all of 2001, factory orders fell by a record 8.5 percent. That’s the biggest drop since the government began keeping records using the current classification system in 1992. In 2000, orders rose by 7.1 percent.