- The Washington Times - Monday, December 22, 2003

In its final estimate of third-quarter economic activity, the Commerce Department is expected today to confirm that gross domestic product (GDP) roared ahead at an annual rate in excess of 8 percent during the July-September period. With the nation poised to enter a presidential election year, however, it is the fourth-quarter and forward-looking economic data that command the greatest political interest. In both areas, the recent reports have been quite favorable.

The Index of Leading Economic Indicators, whose November numbers were compiled and released last week by the Conference Board, was especially bullish. A private research organization that assesses economic trends and makes forecasts, the Conference Board reported that the growing strength of its leading index had become “extremely widespread” in November, “signaling that strong economic growth should persist in the near term.” After an upwardly revised 0.5 percent advance in October, the leading index jumped another 0.3 percent in November. It has now been eight months since the leading index last declined (in March).

Compared to six months ago, the leading index shows that the trend in manufacturers’ new orders for non-defense capital goods is decidedly upward. The same favorable trend during the past six months has been true for manufacturers’ new orders for consumer goods as well. Portending an upturn in the labor market, which has only recently begun to stabilize, internal leading-index data reveal that the average work week for production workers in manufacturing has increased during each of the last four months, while average weekly initial claims for unemployment benefits dropped significantly during both October (-23,600) and November (-18,800). Last week, the Labor Department reported that for the week ending Dec. 13, initial unemployment claims dropped to nearly 350,000, the pivotal level below which business payrolls should begin to show consistent monthly expansions above 150,000 jobs.

Two separate reports last week from the Federal Reserve System further buttressed the economic outlook, particularly in the heretofore lagging manufacturing sector. The Federal Reserve Board reported that industrial production (manufacturing, mining and utilities) in November increased by 0.9 percent, its biggest monthly expansion in more than four years. That follows relatively hefty jumps in September (0.6 percent) and October (0.4 percent). The manufacturing sector by itself also increased by 0.9 percent in November. During the three-month period of September through November, manufacturing output has expanded at an annual rate of 5.9 percent. And initial data for December look quite good as well. In its regional survey for December, the Philadelphia Fed reported that its broadest measure of manufacturing activity increased for the seventh month in a row, achieving its highest reading since December 1993. Its new-orders index reached its highest level in 23 years, and its employment index surged as well.

Residential fixed investment continues to be a bright economic spot. It increased during the 2001 recession year; then it expanded by a solid 6.7 percent during an otherwise lackluster 2002, after which it soared at a double-digit clip during the first three quarters of this year. If recent Commerce Department data for housing starts are any guide, the housing boom continues. Not only did last week’s report for November activity upwardly revise the 17-year high in housing starts reached in October, the report also reflected a solid 4.5 percent increase for November. Single-family housing starts reached their all-time record last month.

While the economy sizzles, inflationary pressures are still dormant. After remaining unchanged in October, the overall consumer price index (CPI) declined in November by 0.2 percent. For the 12-month period ending in November, the CPI’s core component, which excludes volatile energy and food prices, fell to a 40-year low.

The trends are as unmistakable as they are favorable. As output in several important sectors is expanding at an increasing rate, the labor market continues to show improvement, while prices remain essentially flat. That is a combination that should bring some Christmas cheer at the White House.

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