Government data shows economy on the rebound
By Martin Crutsinger
Associated Press
WASHINGTON — The economy appears to be emerging from its late summer funk, easing concerns about a possible double-dip recession.
In a pre-Thanksgiving blizzard of reports, the government said yesterday that new claims for unemployment benefits fell to a 21-month low last week. Consumer spending in October shot up at the fastest clip in three months and orders to U.S. factories for big-ticket durable goods increased for the first time in three months.
And the Federal Reserve found slightly stronger business activity in its latest nationwide survey, reporting scattered signs of improvement in late October and early November.
Those reports followed news earlier this week that consumer confidence, which had been falling for five consecutive months, rose in November and that the overall economy grew at a robust 4 percent rate in the July-September period, a big revision from the initial estimate of 3.1 percent.
Taken together, analysts said, the string of better-than-expected reports point to a gradual rebound from what Federal Reserve chairman Alan Greenspan had termed a "soft patch" for the economy.
"We are coming out of the soft patch and stepping on firmer ground," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "I am reasonably sure we have avoided a double-dip recession."
The Commerce Department said consumer spending rose by 0.4 percent last month compared with activity in September, led by stronger demand for nondurable goods such as clothes and food. It was the biggest increase in three months and followed a drop of 0.4 percent in September.
"Consumers hit the malls with a vengeance in October," said Joel Naroff of Naroff Economic Advisors. "While vehicle sales may have cooled, consumers' desires for everything else haven't."
Analysts said this strength gives hope that the all-important Christmas sales season will not be as dismal as had been feared.
Part of the reason for optimism about future consumer spending, which has been the driving force in the recovery, is a firming in the labor market. The Labor Department said that new claims for unemployment benefits fell by 17,000 last week to 364,000, the lowest level in 21 months.
As layoffs slacken and job growth improves, economists predict stronger income gains in the months ahead, giving Americans the power to keep spending. The Commerce Department report on spending found that incomes rose by only 0.1 percent in October. But with the help of last year's tax cut, disposable income — the amount left after taxes are paid — rose by a stronger 0.2 percent in October.
The Fed's business survey, known as the "beige book" for the color of its cover, struck a decidedly more positive tone about business conditions in early November than the previous report, which had depicted a recovery in danger of stalling out.
The Fed found that "economic activity grew slowly," with several districts reporting marginal improvements in retail sales and continued strength in home sales.
At its last meeting, on Nov. 6, the Fed cut interest rates, lowering its target for overnight bank loans by a half-point to a 41-year low of 1.25 percent. Analysts said the strength shown in recent economic reports is likely to persuade the central bank to keep rates unchanged when its board holds its last meeting of the year, on Dec. 10.
