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The Honolulu Advertiser
Posted on: Thursday, November 27, 2003

Business spending spurs recovery at last

By Ken Moritsugu
Knight Ridder News Service

At shopping centers like Circle Center Mall in Indianapolis, retailers are more optimistic about holiday sales this year. Two reports released this week show U.S. consumer confidence on the rise — and, with it, the prospect of more jobs.

Associated Press

WASHINGTON — Two years after the 2001 recession ended, a resurgence in business spending finally is propelling the U.S. economy toward a lasting, jobs-creating recovery.

"Businesses are coming out of their cocoon," said Mark Zandi, chief economist at Economy.com, an economic analysis firm in West Chester, Pa.

"Four to eight weeks ago, I was much more worried that the recovery might be short-circuited. Now I'm convinced it won't. Businesses are doing what we thought they'd be doing a year ago, which is expanding. That was the key missing ingredient, and we've found it."

The latest evidence of the business bounce-back came in a series of upbeat economic reports this week. They confirmed a continued strengthening in business spending on equipment and other items.

More important for the recovery's longer-term prospects, the reports also indicated that businesses probably will begin hiring new workers.

Still, analysts stressed, the economy's health varies considerably from region to region, with major pockets still struggling in the Midwest, the Northeast, the Northwest and the Southeast. The job-market recovery is in its initial stages, and finding a new job remains difficult, particularly in manufacturing.

A Federal Reserve survey released yesterday described the recovery as "reasonably broad-based" across a wide range of industries, though it said the pace of growth varied somewhat by region.

A crucial test will come next week, when the Labor Department issues its monthly report on the number of jobs and the unemployment rate for November.

A hopeful sign on the employment front came yesterday, with the Labor Department's weekly report on how many people are collecting unemployment benefits. New applications for benefits fell by 11,000 to 351,000 last week, the lowest level in nearly three years. A drop in the newly unemployed means that layoffs are abating.

The report also indicated companies may be hiring. The number of people remaining on unemployment fell 105,000 to 3.4 million for the week ending Nov. 15, suggesting that some of the jobless are finding work.

The improving jobs situation lifted consumer confidence in two reports out this week. The latest, the University of Michigan consumer sentiment index, released Wednesday, rose to 93.7, its highest level in 18 months.

"Consumers reported that a healthier economy had already created more jobs, and consumers expected the growth in the number of jobs to accelerate during the year ahead," said Richard Curtin, the survey director.

On the business-spending side, a Commerce Department report confirmed Tuesday that business investment grew strongly this past summer for the second quarter in a row. That helped fuel the June-to-September quarter's astounding economic growth of 8.2 percent at an annual rate.

"The fact that firms see things brightening up enough to do this kind of spending tells me we're in a sustainable recovery mode," said Peter Hooper, the New York-based chief U.S. economist for Deutsche Bank.

A new report yesterday indicated that business spending is likely to remain strong. New orders for factory machines and other major business purchases rose 1.7 percent in October, the Commerce Department said.

That was part of an overall 3.3 percent jump in orders for durable goods, which include airplanes and major consumer purchases such as appliances and cars. It was the fourth straight monthly rise, and far exceeded what analysts had expected.

The durable goods report suggests that factories, the hardest-hit sector in the recession, may be seeing the light at the end of the tunnel.

"The durable goods report is the best evidence yet that the U.S. economy has entered a period of sustainable recovery," said Thomas Duesterberg, the president of the Manufacturers Alliance, an industry research and education group in Arlington, Va.