Economy showing signs of recovery

Retailing, banking, factory orders expand

July 04, 2002|By BLOOMBERG NEWS

WASHINGTON -- The U.S. economy showed several signs yesterday that it is recovering. Services such as retailing and banking, the biggest contributor to gross domestic product, expanded for a fifth month in June; factory orders rose for a third month in May; and claims for unemployment benefits declined last week to the lowest level since the recession began in March 2001.

"In manufacturing and call centers, we've seen excellent growth," said Jamie Parker, a senior vice president at Adecco SA in Rochester, N.Y. The Swiss company is the world's largest temporary-employment agency. "More and more people are going to work every week, and we definitely see growth at this time."

The drop in unemployment claims indicates the worst of the payroll cuts might be over. As companies from Wal-Mart Stores Inc. to Lennar Corp., the biggest builder, increase sales and manufacturing emerges from an 18-month slump, there's little to indicate the recovery is faltering.

"Today's data point to a recovery that is still ongoing but tentative," said Drew Matus, an economist at Lehman Brothers Inc. in New York.

The Institute for Supply Management's index for retail, financial services, construction and other non-manufacturing companies was 57.2 in June. While that's lower than the 60.1 in May and the 58.3 expected in a median forecast of economists in a Bloomberg News survey, the index is close to its all-time high, and since February it has been above 50, the point that separates contraction from expansion.

Wal-Mart, the world's largest retailer, said sales at stores open at least a year might have been as much as 7 percent higher last month than a year ago as shoppers bought more summer clothing and tools. Lennar, which built more houses last year than any other U.S. builder, said it sold 10 percent more in the quarter that ended May 31 than it did in the corresponding quarter a year earlier.

In eight of the 10 months from April 2001 to January, the institute had reported a decline in business at service companies.

Factory orders rose 0.7 percent in May, led by a 0.9 percent rise in durable-goods bookings. Economists expected orders to rise 0.5 percent. Orders for non-defense capital goods excluding aircraft, an indicator of business investment, rose for the second straight month.

Inventories fell 0.4 percent, the 16th-straight drop, and were down 8.7 percent from a year ago. The inventory-shipments ratio, a measure of how fast products are sold, fell to 1.32 months, tying the record low set in January 2000. Inventory buildup contributed to the recession, which began in March 2001.

The dollar had its biggest gain in seven weeks against the euro as reports indicated the recovery might be stronger than Europe's. The U.S. currency has risen 1.8 percent since falling to a 28-month low of 99.88 cents Friday.

On Wall Street, the Dow Jones industrial average climbed 47.22 points to close at 9,054.97, and the Nasdaq composite index jumped 22.35 points to 1,380.17.

The supply managers index is a companion to one that showed manufacturing expanded in June at the fastest pace in more than two years. The group, based in Tempe, Ariz., has tracked the growth in the services industry, which accounts for nearly 85 percent of the economy, for five years.

States received 382,000 initial unemployment claims in the week that ended Saturday, down 11,000 from a revised 393,000 in the week before last, the Labor Department said. The last time claims were this low was in the week ending March 24, 2001. The four-week average for claims, a less volatile indicator, also declined.

New claims have been below 400,000 for five straight weeks, the first time that has happened since February-March and a sign that the worst of the job cuts after the start of the recession is over. Microsoft Corp. said last month that it's making the largest addition to its sales force in a decade.

"An improving labor market will support continued increases in consumer spending, the linchpin of the economic recovery," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis.

Analysts had expected claims to fall to 385,000 last week from a previously reported 388,000 the week before.

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