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U.S. Economy Said to Show Signs of Life
Jan 3, 2003
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A national report on manufacturing business conditions has showed its first growth in four months. The report followed on the heels of The Wall Street Journal’s 2003 economic-forecast survey which said economists expect companies to start using rising profits to rebuild inventories and make capital improvements in 2003, helping to fuel an economic recovery. The

Institute for Supply Management said its index of manufacturing business conditions rose to 54.7 from 49.3 in November — far above the modest increase to 50.3 analysts had expected. However, the group said the reasons for the magnitude of improvement were not clear. The last time the national survey came in above the critical 50 level, which signals expansion in the sector, was in August, with a reading of 50.5. "These positive signs may help provide momentum for (the first quarter) as companies start to see some improvement," said Norbert Ore, director of the ISM survey. But he added in a statement accompanying the survey results that the magnitude of improvement was "somewhat difficult to explain." The ISM new orders index surged to 63.3 from 49.9 in November — the largest one-month increase since 1980. A barometer of future production, the new orders index has recovered close to its peak of 65.3 in March. The employment index improved slightly, to 47.4 from 43.8.

Manufacturing activity, which accounts for around one-fifth of the U.S. economy, turned down in late summer and remained in the doldrums as confidence faltered, reflecting the precarious nature of the U.S. economic recovery. Economists hope for steadier improvement in the economy in 2003.

The manufacturing report followed an upbeat survey of economists by The Wall Street Journal. The survey said that after 2 years of cost-cutting, economists expect companies to start using rising profits to rebuild inventories and make capital improvements in 2003, helping to fuel an economic recovery. The Wall Street Journal’s 2003 economic-forecast survey of 55 economists indicates that economists generally believe increased corporate spending will contribute to steady economic growth throughout the year. Government data showed that pretax profits in the third quarter of 2002 were up 12 percent from the same period a year earlier.

On average, the economists forecast that real gross domestic product - the value of the nation’s output, adjusted for inflation - would grow at an annual rate of 2.7 percent in the first quarter, 3.2 percent in the second quarter and 3.7 percent in the last two quarters of the year. The economy is expected to have grown by an annual rate of about 1 percent in 2002.

If economic growth falls in line with the experts’ predictions, they expect the unemployment rate to fall to 5.7 percent by the end of 2003, from the current rate of about 6 percent. But the economists also warned about uncertainties in the near future — such as the possibility of an extended conflict in Iraq or new terrorist activity — that could hurt economic growth. (MSNBC, Reuters, Associated Press, The Wall Street Journal)

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