Federal Reserve upbeat on economy

Other indicators signal growing strength as well

`The bears are on the run'

November 27, 2003|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The economic recovery appears to be barreling into the fourth quarter, raising hopes for a sustained upturn.

The Federal Reserve's latest survey of business conditions, released yesterday, found that the economy continued to expand in October and early November after a stunning 8.2 percent growth in the previous quarter. The Fed's report called the improvements "reasonably broadly based," which economists said is the central bank's most upbeat appraisal since the 2001 recession hit.

Other indicators also signaled growing strength.

New orders for manufactured durable goods - big-ticket items - jumped 3.3 percent last month, the biggest spike in more than a year for an area that has been lagging, the Commerce Department said.

And the Labor Department reported that new claims for unemployment benefits dropped to 351,000 last week, the lowest level since January 2001.

"The bears are on the run, and it's about time," said James F. Smith, a professor of finance at the Kenan-Flagler Business School at the University of North Carolina, Chapel Hill. "Every indicator I can think of, if it's not at record levels, it's moving in the right direction."

Retail spending was up in most of the country compared with last year, and retailers generally expect good holiday sales, according to the survey of the Federal Reserve's 12 regions.

Manufacturing activity also ticked up - particularly in the Richmond, Va., district, which includes Maryland. Companies in almost every sector in the region reported higher shipments, although they are not adding jobs.

The tourism and hospitality industry "improved moderately overall," said the Fed report, commonly known as the Beige Book for the color of its cover. In the Richmond district, coastal areas were still struggling with the aftermath of Hurricane Isabel, but mountain areas were almost completely booked for the Thanksgiving holiday, it reported.

The strong residential real-estate market continued to boom, and the country's labor markets - a continual black mark on the recovery's report card - generally improved or remained stable across the nation, the Fed reported. The Richmond region was among those noting stronger demand for temporary workers, which normally precedes permanent hiring.

New claims for unemployment benefits dropped by 11,000 last week, adjusted for seasonal variations, according to a separate report by the Labor Department.

Meanwhile, the Commerce Department said that new orders for durable goods jumped $5.9 billion last month to $184.5 billion.

"We've benefited from a flurry of good news this week," said Anirban Basu, head of Optimal Solutions Group, an economic and policy consulting firm in Fells Point. "Almost all of the data are telling us that the economy is, in fact, improving. ... It looks as if we're going to be entering 2004 with plenty of momentum."

He said the strong tourism performance in the region shows that consumers are willing to spend on discretionary items, an indication of how the holiday season will play out.

Steven Cochrane, a senior economist at Economy.com in West Chester, Pa., said the only missing piece of the recovery puzzle is robust hiring, though he thinks stability is welcome news after many months of job losses.

"What was remarkable was, virtually all of the Fed districts were equally upbeat," he said. "Just as the recession was pretty broad across the whole country, so it seems the current recovery is pretty broad geographically as well."

Dawn McLaren, a research economist with Arizona State University's Bank One Economic Outlook Center, remains concerned that the country has fewer jobs now than it did this time last year. But she's heartened by the increase in business investment and the hiring of temporary workers.

"It looks like we're starting to have a real turnaround this time," she said.

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