- The Washington Times - Wednesday, January 23, 2002

The biggest jump in nearly a decade in the nation's leading gauge of economic activity yesterday suggested that the economy is heading for a strong rebound in the second half of the year and may be on the verge of recovery.
The Conference Board said its Index of Leading Economic Indicators in December jumped for the third month in a row and is above the peak it hit in January 2000 at the end of the 1990s economic boom no small feat during a recession.
Last month's increase was led by a surge in consumer confidence as Americans shook off fears from the September 11 terrorist attacks and took heart in the improving economic climate. Feeding the optimism were declines in claims for unemployment insurance as the pace of layoffs lessened, and a pickup in work hours, which means consumers have more income to spend.
Consumers and businesses also have been buoyed by the lowest interest rates in a generation as a result of the Federal Reserve's aggressive campaign to revive the economy in the last year. With average 30-year mortgage rates dipping back below 7 percent last week, the housing market remains robust, and permits to build new homes are on the rise.
"I'm very optimistic," said Robert McTeer, president of the Fed's Dallas reserve bank. "The prospects are better than they used to be.
"You can find straws in the wind that are very positive," he told the San Antonio Chamber of Commerce. "It's too early to know if we're at the bottom or the beginning of a recovery but it certainly looks better than it did a month ago."
Mr. McTeer said the "very, very strong" rebound in consumer confidence in the last month is a key reason economic forecasters now say the economy will emerge from recession as early as this month, though consumers' spending power may be held back by the hit to income from continuing layoffs.
"We won't get zip-a-dee-doo-dah, but our economy will improve, and we won't have the blues," Mr. McTeer said. He added that Federal Reserve Chairman Alan Greenspan shares in the renewed optimism about the economy, though Mr. Greenspan had cautioned earlier this month that consumers continue be threatened by rising unemployment. Mr. Greenspan is expected to update his remarks in congressional testimony tomorrow.
Consumers made such a strong showing in the final three months of the year that the contraction in the economy may turn out to be no bigger than the 1.3 percent loss of economic output seen in the summer quarter, Mr. McTeer said.
But like Mr. Greenspan, Mr. McTeer, a member of the Fed's policy-making committee, cautioned that any sustained improvement in the economy must be based on a lasting pickup in consumer spending, as well as a revival of business investment spending, which remains in a depression.
Economist Ken Goldstein of the Conference Board, a private economic research group, said the three successive monthly increases in the business research group's forecasting gauge especially the increases of 0.8 percent and 1.2 percent in November and December, respectively send a "strong signal that the recession could soon be over."
He said the recovery is likely to start gradually early this year and take "awhile to build up a head of steam."
"But by the time you get to the fourth quarter, we are running full steam ahead," he said.
"We think the economy is finally turning up" after falling into recession in March, said Richard Rippe, chief economist with Prudential Securities in New York. He noted that retail sales grew at an 11 percent annual rate in the final quarter of last year, propelled by a record rate of auto sales as consumers took advantage of zero percent and low-rate financing offered by car dealers.
Even the hard-hit manufacturing and technology businesses that led the nation into recession show signs of stabilizing and may be at a turning point, he said.
"We think the whole year will be a decent year," with business profits and investment spending rebounding along with the economy, he said. Prudential is among the most optimistic of forecasters, estimating that growth will re-emerge at a healthy 2.6 percent rate in the first three months of the year.
David Huether, chief economist for the National Association of Manufacturers, said growth will be held back by recessionary economies overseas and a strong dollar, which have stifled growth in U.S. exports.
"This has been a manufacturing-led recession," he said. "With manufacturing in the doldrums, the prospects for a strong rebound remain dim."

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