- The Washington Times - Tuesday, October 28, 2003

The Federal Reserve yesterday issued a moderately upbeat assessment of the economy, noting that the job market is no longer weakening and economic growth has picked up markedly.

It said it would keep interest rates at the lowest levels since 1958 to ensure that the recovery continues.

The statement by the central bank came as more signs of economic improvement emerged. Reports showed pickups in manufacturing orders and consumer confidence, with the more upbeat mood among consumers largely reflecting a small increase in jobs and improvement of labor market conditions in the past month.

Stocks surged after the Fed’s mid-afternoon announcement, with the Dow Jones Industrial Average ending up 140 points, or 1.5 percent, and the technology-driven Nasdaq Composite Index adding 49 points, or 2.6 percent.

The Fed appeared to bolster stocks while not provoking an unwanted spike in market interest rates by saying that it remains more concerned about an unwarranted fall in prices rather than a rise in inflation. Its remarks prompted a drop in market interest, which means, for now, that mortgages and other key consumer rates will stay low.

President Bush pointed out the steadily improving conditions at a White House news conference yesterday.

“Our economy is showing signs of broad and gathering strength,” he said. “America is starting to add new jobs, retail sales are strong, business profits are increasing, the stock market has been advancing, housing construction is surging and manufacturing production is rising.”

Yesterday, the Commerce Department reported a 0.8 percent increase in orders for big-ticket items such as cars and appliances last month. The battered manufacturing sector is in a rebound fueled by more business spending on technology and other capital equipment.

A survey of economists at large corporations found the biggest increase in demand for goods and services since the economic boom of 1999, although it noted little pickup in hiring plans.

Despite the lingering cautiousness about hiring, a survey by the Conference Board, a New York business group, found that confidence is rising among consumers because of perceptions that jobs are easier to come by. The assessment appeared to reflect a 57,000 increase in jobs reported by the Labor Department last month — the first increase since January.

Edward Yardeni, chief investment strategist with Prudential Securities, said the country is experiencing the classic upturn in the economy and stock market that usually occurs in the third year of a president’s term as measures put in place by the administration and the Fed start to build momentum in the economy. He expects it to peak during the election year.

While that should boost Mr. Bush’s chances for re-election, as the president no doubt calculated, Mr. Yardeni said the president would not fare so well were the election held today, because of the still-shaky job market.

“While it’s encouraging that people are feeling better about the labor market, the fact remains that we are still anxiously waiting for increased demand and business spending to translate into significant hiring,” said Oscar Gonzalez, senior economist at John Hancock Financial Services Inc.

The strong evidence of a recovery in business capital spending suggests that the rebound is starting to reach a critical mass, he said, but “until we remove ‘jobless’ from its seemingly permanent place in front of ‘recovery,’ we won’t feel like we’re completely back on track.”

Economists note that the lingering weakness in the job market is the reason the Fed will continue to nurture economic growth with the extraordinarily low interest rates it engineered in the past year. Most Fed watchers do not expect the central bank to even consider raising rates until spring.

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