- The Washington Times - Tuesday, December 16, 2003

The economy kept rocketing skyward last month. Home building hit a record high while the nation’s battered manufacturing sector staged a convincing comeback with a robust 0.9 percent jump in production.

Manufacturing exports are rising again and produced a modest $4.4 billion reduction in the nation’s massive current account deficit to $135 billion last quarter, thanks largely to the falling dollar, analysts said. But most remarkably, the dollar’s decline for the most part has not resulted in price increases for consumers: A key measure of consumer prices dropped for the first time in 21 years last month.

The upbeat economic news helped lift the Dow Jones Industrial Average by 107 points to 10,130. Analyst Lawrence Kudlow of Kudlow & Co. said the economy is going through a deflationary boom like the one in the late 1990s that is the result of consumers this fall passing the baton of economic growth on to businesses.

Businesses are investing in technology again and are increasing purchases of everything from office equipment to inventories. They are getting the windfall of a surge in profits caused by rising sales, tax cuts, the declining dollar and stunning productivity gains.

The resurgence in business investment, particularly in high-tech equipment, is “setting the stage for a powerful new boom,” Mr. Kudlow said.

A report from the Federal Reserve yesterday showed that production of computer and office equipment surged in the past two months by more than 4 percent, while Mr. Kudlow noted that production overall has grown three times faster than retail spending in the past three months.

“We are producing more rapidly than we are consuming. Supply is growing faster than demand. So inflation remains nonexistent,” he said. The Labor Department reported yesterday that consumer prices fell by 0.2 percent last month while core prices, excluding volatile food and energy, dropped for the first time since 1982.

The economic boom since summer has been particularly gratifying for businesses, which have seen their profits soar thanks to generous tax write-offs for investments and stellar productivity gains, though it hasn’t produced much new hiring for a growing backlog of workers seeking jobs.

Home builders have been among the most bullish, repeatedly brushing aside predictions this year that the housing boom would wane as interest rates rose in response to revival in growth. Builders increased starts on single-family homes by 3.3 percent to a record 1.695 million annual rate last month, while they drove starts on housing of all kinds to a two-decade high of 2.07 million, the Commerce Department reported.

The resurgence has been spreading to businesses of all types and sizes.

A survey of small businesses by the National Federation of Independent Businesses found optimism jumped to the highest level in nearly two decades last month, though the survey confirmed that hiring plans among mom and pop shops — which generate the bulk of jobs in the United States — remain weak.

Workers will see more benefit from the boom next year as businesses reach the end of their ability to make do with the existing work force, economists say.

“The strength of profits, jobs and incomes will surprise everybody on the upside next year,” Mr. Kudlow said.

“The recovery is really quite strong, but it’s still mostly a result of high productivity and hasn’t really begun to create many jobs yet,” said William Niskanen, chairman of the Cato Institute and a member of former President Ronald Reagan’s Council of Economic Advisers. “Even so, by Election Day, it’ll be very difficult for the Democrats to make an issue out of the economy.”

A survey of 16,000 businesses by Manpower Inc. yesterday found a small net increase in those planning to hire new workers from 10 percent in the fourth quarter to 13 percent in the first quarter — the first such increase in five years — suggesting a modest job recovery is under way.

National Association of Manufacturers chief economist David Huether hailed the “encouraging” employment news, which comes after manufacturing job losses totaling 2.8 million since 2000.

The upswing in manufacturing is now robust and broad-based, he said, with 16 of 19 industries surveyed by the Fed reporting solid growth.

“Though the recovery has had a few ‘false starts,’ we’re now solidly out of the blocks and moving along the right track,” he said.

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