- The Washington Times - Saturday, March 2, 2002

Evidence of a broad economic revival stoked optimism on Wall Street yesterday and sparked a 263-point surge in the Dow Jones Industrial Average.

Stocks rose after government reports showed strong spending by consumers and builders and the first increase in manufacturing activity in a year and a half, adding to the growing conviction among investors that the economy is in a solid recovery from the mildest recession in U.S. history.

The Dow rose 2.6 percent to 10,369, the highest level since August, while the technology-driven Nasdaq Composite Index soared 4 percent, or 71 points, to 1,803. Companies that stand to gain from an upturn from computer-chip makers to auto manufacturers and consumer-products companies benefited the most amid prospects for a return to growth and profitability.

"Houston, we have liftoff," said Joel Naroff of Naroff Economic Advisers. The return of growth in America's industrial heartland after one of its longest droughts, as seen in a report from the Institute for Supply Management yesterday, puts an important chip in place for an economic recovery, he said.

Even consumers are showing that they are not exhausted after a spending binge on cars at the end of last year, with both spending and incomes rising 0.4 percent in January. Construction spending, boosted by unusually mild and dry weather, jumped 1.5 percent for its biggest increase in a year.

"The consumer is showing no signs of letting up," said Mr. Naroff, though he noted that the rise in incomes was fueled by a cost of living increase in government benefits and wages and by a one-time surge in disposable income as the new 10 percent tax bracket for middle-income wage earnings took effect.

Private wages and salaries were off sharply, most likely because of reduced employment, he said. Businesses must stop cutting jobs if income and spending are to grow steadily in future months.

"The economic data is so good you can't ignore it. It's like a 2-by-4 hitting you in the face," said Roger Young, a strategist at Fidelity Capital Markets' Vestigo Associates.

He said Federal Reserve Chairman Alan Greenspan may have been overly cautious in his assessment of the economy Wednesday. Many investors expect a more robust economic rebound than the Fed chief, who said continued weakness in consumer and business spending will restrain the economy.

Since he spoke, a report showing that the economy expanded at a 1.4 percent rate in the last quarter of 2001 after only one quarter of decline sparked by the September 11 terrorist attacks has caused some analysts to question whether the economy was ever really in recession.

Yesterday's report on manufacturing was a welcome balm for the most sorely hurt sector of the economy.

"The long, painful recession in manufacturing is over," said Dan Meckstroth, economist for the Manufacturers Alliance. "After a yearlong period of inventory liquidation, we are at the point where production has to rebound because there are no excess inventories left to cut."

About the only dark cloud on the horizon yesterday was a report from the University of Michigan showing a small decline in consumer sentiment last month, most likely reflecting concerns about the safety of retirement accounts and the truthfulness of corporate financial statements in the wake of the Enron scandal.

"The consumer chose to focus on the financial-market frailty, rather than the pronounced gains in economic activity," said Richard Yamarone, chief economist with Argus Research Corp. "Luckily, consumers rarely do what they say, and spending continues to advance."

The stock market also has been weighed down in the last month by concerns about overly aggressive accounting sparked by revelations that Enron, Global Crossing and other large companies and Wall Street darlings may have played fast and loose with their earnings numbers. Those concerns appeared to be dissipating yesterday, though some stock analysts say more unpleasant disclosures may come.

"Volume is still somewhat light, showing that the rank and file still have some reservations," said Bryan Piskorowski, market commentator with Prudential Securities. "It's nice to see March coming in like a lion, but it's still a work in progress."


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