Consumers feel chipper; production, inventories grow
From wire reports
WASHINGTON — Consumer sentiment enjoyed its biggest one-month jump in more than 11 years in early January, signaling the economy is likely at a turning point that will lead to better hiring.
A second report Friday showed industrial production at the nation's factories, mines and utilities rose only 0.1% in December, a slowdown after a sizable jump in activity the month before. And another report showed businesses — keeping a close eye on economy — boosted their stockpiles of unsold goods 0.3% in November, a sign they are betting the rebound will last.
Consumer sentiment
The University of Michigan's preliminary reading of consumer sentiment rose to 103.2, the highest since November 2000 — before the recession hit three years ago and the economy suffered through a sluggish rebound.
January's reading, up more than 10 points from December's 92.6 level, was the biggest one-month increase since late 1992 and easily surpassed economists' forecasts for a rise to 94.0.
"It's a sign, if anything, that perhaps the labor market improved dramatically in the first couple of weeks of January versus December," said Ian Morris, chief economist at HSBC Securities USA in New York.
The confidence data helped ease worries that the labor market's slow recovery might undermine consumer spending, which makes up two-thirds of economic activity in the United States.
Consumers' hearty spending over the past few years, helped by tax cuts and low interest rates, has helped keep the economy from suffering a sharper downturn.
Economists said a variety of factors likely boosted confidence: the holidays passing without any attacks, the rise in stock indexes to nearly two-year highs, coming tax refunds and an end to big layoffs.
The breakdown of the sentiment index showed expectations for the economy's six-month outlook jumping by nearly 10 points to 99.5. That big rise in part reflects a climb in stock indexes to nearly two-year highs.
Consumers' assessment of current economic conditions also improved sharply, to 108.9 from 97.0 the prior month. Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the improvement in the current conditions index "is entirely consistent with the drop in jobless claims."
The preliminary University of Michigan survey is based on responses from 300 households around the country each month, and the survey's results are updated at the end of the month with an additional 200 responses.
Industrial production
The modest increase in industrial production reported by the Federal Reserve came after production jumped 1% in November, even stronger than previously estimated. November's performance was the biggest gain in four years.
Economists were expecting industrial production to cool a bit in December given November's brisk activity. Analysts were calling for a 0.5% increase. Still, December's gain marked the fourth straight month that industrial production expanded.
Earlier this week, the Fed, in a more foward-looking survey of business conditions around the country, found the economy was gaining momentum as the new year began. The Fed reported growing signs that the nation's battered manufacturing sector was beginning to pull out of its steep nosedive.
In Friday's report, production at factories — the biggest chunk of industrial activity tracked by the Fed — rose a modest 0.3% in December, down from a 1% gain the previous month. Output at mines was flat, following a 0.6% increase in November. Production at utilities sank 1.4%, erasing the same-sized gain the month before.
"When you put all the data together it shows that a moderate manufacturing recovery is sustainable and is continuing," said Clifford Waldman, economist at the Manufacturers Alliance/MAPI, a research group.
Business inventories
The increase in inventories reported by the Commerce Department came as business sales rose 0.5%, suggesting that companies saw demand for their products as shoppers got ready for the holiday season.
The 0.3% boost in inventories was slightly stronger than the 0.2% rise economists were forecasting.
In October, inventories rose a solid 0.4%, while sales increased a brisk 0.7%.
Inventory building can be a sign that businesses are feeling more confident that the economic recovery is genuine. Importantly, though, the process adds to economic growth, as measured by the gross domestic product.
GDP measures the value of all goods and services produced within the United States and is the broadest measure of the economy's health. Big cutbacks by companies in their inventories was a key factor in the economy's slump.
After a long bout of a lackluster activity, the economy shifted into a higher gear in the second half of last year.
With the economy improving, analysts are hopeful businesses will feel even better about prospects and will ramp up inventories and hiring. Businesses still have been reluctant to go on a major hiring spree, which has been a sore spot not only for jobseekers but also for the economy itself.
In December, the economy added a paltry 1,000 jobs, disappointing analysts. The nation's unemployment rate dropped to 5.7% but that was mainly due to thousands of potential workers who gave up looking for jobs.
The Federal Reserve meets Jan. 27-28 to discuss interest-rate policy. Economists expect policymakers will keep their target for a key short-term interest rate at 1%, a 45-year low.
Some economists believe rates will stay at such super-low levels the rest of the year and into 2005. Others, however, believe the Fed could start pushing rates up later this year.
With inflation low, the Fed has leeway to keep rates near rock bottom levels for some time to help the labor market heal, economists say.
By keeping short-term rates low, businesses and consumers might be motivated to spend and invest more, forces which would lift economic growth.
The economy grew at a blistering 8.2% annual rate in the third quarter 2003 — strongest performance in nearly two decades. Analysts believe the economy expanded at a rate of around 4% to 5% in the final quarter last year, saying the breakneck growth seen in the third quarter couldn't be sustained. |
