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Wednesday, 2 January, 2002, 22:20 GMT
US economy turning up?
Shopper in front of Toys R Us
Consumers have been driving the US economy
David Schepp

The rolls of the unemployed may be still on the rise in the US, but other economic indicators are showing encouraging signs of economic recovery, analysts say.

NAPM graphic
An upswing in manufacturing orders, a rise in consumer confidence as well as stocks, and a stable and robust housing market all have economists upbeat at the beginning of the new year.

Adding to that enthusiasm were Monday's figures showing December's manufacturing activity, known as the Purchasing Managers Index (PMI), moving closer to expansion than any time since October 2000, after 17 months of contraction.

The index of manufacturing activity, as calculated by the Institute for Supply Management (ISM), also revealed that new orders rose into expansion territory for the first time since the 11 September attacks.

"The [ISM] numbers were good," says Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum in New York. "They clearly show an economy that's starting to rebound," he said, adding, however, that the activity is not very vigorous.

Enthusiastic consumers

It has been the American consumer who has been cited time and time again amid the economic slowdown as the saviour of the US economy, preventing it from falling flat on its face.

Nasdaq Market Site in New York
Tech stocks have begun a mild recovery
But while consumerism seems unabated, there is no doubt Americans are in search of a good deal. Witness the recent acceleration in auto sales in response to zero-interest financing, as well as enthusiastic response to post-Christmas sales.

"The consumer has remained amazingly robust in the face of uncertainty and increased layoffs," says Bernard Markstein, president at Markstein Advisors.

In particular, Mr Markstein notes, aside from cars, spending on homes has held up remarkably well. Housing starts have remained above 1.5 million annual rate since March, the month officially pegged as the beginning of the current recession.

Rising joblessness

It is the rising unemployment rate, however, that has policy makers in Washington most concerned.

On Friday, the US labour department is due to report the latest figures for joblessness for December. After rising to 5.7% in November, consensus estimates among economists call for a slight rise to 5.8%.

Still, experts say a rise is to be expected, given the recent spate of layoffs, which recently surpassed 1 million US workers. Analysts warn the jobless rate will continue to rise - as high as 6.5% - even as good economic news from other parts of the economy emerges.

"A rise in unemployment does not indicate weakness in the economy because employment trails recovery," says James Butkiewicz, a professor of economics at the University of Delaware who believes the economy is already rebounding.

Mixed signals

What has some confused are the conflicting signals economic data and corporate news releases are unleashing on the American economy.

But that is par for the course, says investment strategist Hyman. Investors cannot expect to go from a bear market, in which stock prices consistently fall usually greater than 15%, to a bull market without a transitions period.

Mr Hyman says positive signs can be seen within the embattled computer-chip sector, which recently has seen its productivity figures rise - and technology as a whole has seen demand increase - even as unemployment within the industry rises.

"Right now it is a mixed bag," says Mr Hyman, "pointing to signs of a recovery".

See also:

02 Jan 02 | Business
US factory output picks up
19 Dec 01 | Business
Dow signals US recovery
19 Dec 01 | Business
US trade soars to recovery
12 Dec 01 | Business
False starts for US economy optimism
11 Dec 01 | Business
US recession may already be over
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