- The Washington Times - Tuesday, December 2, 2003

On the heels of last week’s upward revision for third-quarter gross domestic product (GDP), whose estimated annualized growth rate jumped from 7.2 percent to 8.2 percent, other economic reports have confirmed that the economy has continued its robust expansion during the fourth quarter.

The Federal Reserve’s Beige Book, which reviewed recent economic activity throughout each of its 12 districts, reported that “the economy continued to expand in October and early November.” The Fed’s survey found that improvements were “broadly based, with most districts noting growth in a number of industries.” Manufacturing activity accelerated in most districts. Nearly all districts characterized residential real estate activity as “strong.” Consumer spending, based on retail sales, continued to expand. Particularly welcome was the Fed’s observation that “labor market conditions generally stabilized after an extended period of weakness.”

On Monday, the Institute for Supply Management (ISM) issued its most favorable assessment of the nation’s manufacturing industry in several years. Indeed, the ISM numbers for November were almost as stunning as the revised figures for last quarter’s GDP. While the Commerce Department reported last week that the 8.2 percent annual GDP growth rate for the third quarter was the highest since the first quarter of 1984, the ISM reported Monday that “the manufacturing sector enjoyed its best month since December 1983.” Eighteen of the 20 industries in the manufacturing sector reported growth. That would be a GDP growth rate of 7.3 percent on an annual basis.

At long last, the manufacturing sector appears to be gathering some serious momentum. Several key ISM series and indexes — e.g., the purchasing managers’ index and the series for new orders, production and order backlogs — are moving in the right direction. Also, in all of these cases, the monthly rate of change was reported to be accelerating. Moreover, the ISM’s employment index for the manufacturing sector registered growth in November for the first time in 38 months.

After falling during nine of 10 quarters, business investment expanded at a 7.3 percent annual clip during the second quarter and then grew at an even more robust 14-percent annual rate during the third. Projecting that business investment continues to expand briskly during the fourth quarter, ISM data indicated that much of November’s gain was powered by accelerating capital-goods investment.

With the manufacturing output increasing for the fifth consecutive month, extraordinary increases in worker productivity explain why manufacturing employment has not yet reversed its three-year decline. Initial annualized data indicate that manufacturing output increased by nearly 3 percent, while labor hours declined by more than 5 percent, resulting in a productivity increase of 8.6 percent. The productivity increase in the durable-goods industries was especially stunning, rising at an annual rate of nearly 15 percent last quarter. Even more astonishing, these figures are widely expected to be revised upward today.

While job growth remains disappointing, the breadth and depth of this economic recovery is a wondrous thing to behold. If this growth is sustained, as seems increasingly likely, unemployment should eventually come down to pre-September 11 levels.

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