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The Honolulu Advertiser

Posted on: Tuesday, December 4, 2001

U.S. economy shows signs of recovery

By Martin Crutsinger
Associated Press

WASHINGTON — Lured by no-interest auto deals, Americans pushed up consumer spending by the largest amount ever in October. A closely watched manufacturing gauge rebounded a bit, too, and construction spending halted a five-month slide in encouraging economic news.

While insisting it was too early to declare that the recession was ending, economists said the figures released yesterday provided some hope that the groundwork is being laid for a rebound early next year.

"The new figures support the idea that this will be a mild recession and that we will recover from it fairly quickly," said David Wyss, chief economist at Standard & Poor's in New York.

The Commerce Department reported that personal spending rose by a record 2.9 percent in October. The jump was led by the biggest increase ever in spending on autos and other durable goods, which reflected the huge success of zero-

interest financing packages offered to lure shoppers back to showrooms after the Sept. 11 terror attacks.

Both General Motors and Ford reported yesterday that continuation of the incentive programs had helped boost sales in November as well, compared to the same period a year ago.

Strong auto sales are expected to spur increased production next year and help halt a yearlong slide in manufacturing. In an encouraging sign, the National Association of Purchasing Managers said yesterday that its closely watched manufacturing index posted a rebound in November to 44.5, up from an 11-year low of 39.8 in October.

While the index remained at a level indicating a manufacturing recession, analysts saw the November increase as a strong gain that was led by the biggest jump in new orders on record.

In another report, construction spending halted five consecutive declines to post a 1.9 percent advance in October, the best showing since January. The increase reflected widespread strength in home and office construction as well as a record level of spending on government projects, led by a big gain in school construction.

The economic reports were not all positive yesterday. Despite the big increase in personal spending, Americans' incomes were stagnant for a second straight month as the thousands of layoffs in the airline and tourism industry following the terrorist attacks began to put a crimp on wages and salaries.

Economists say that one of the downside risks to a recovery early next year would be a sharp nosedive in spending caused by Americans fearful about job prospects.

"While the October spending binge was impressive, the lack of income growth creates concerns about future trips to the malls and dealerships," said Joel Naroff, chief economist of a Holland, Pa., forecasting firm.

Still, analysts said the aggressive credit easing by the Federal Reserve and an expected stimulus package of tax cuts and increased government spending from Congress should combine to trigger a rebound in growth next year.

"The economy is not out of the woods, however, a recovery next year remains very likely," said Melanie Jani, an economist at Salmon Smith Barney in New York.

The new reports showed that Americans' after-tax incomes fell 1.7 percent in October, the biggest decline since January 1994. It reflected the layoffs and the wrap-up of the government's tax refund mailings. With spending up and after-tax incomes down, the personal savings rate fell to a record low of just 0.2 percent in October.