<U.S Economy> End of prosperity? Naaaah don't look like it(UMich Survey)
ed a:
Check this out,simply stunning!
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U.S. Economy: Confident Consumers Seen Prolonging the Expansion
Ann Arbor, Michigan, March 26 (Bloomberg) -- Americans'
outlook about the economy held at a high level for a fourth
straight month in March, suggesting increased consumer spending
will keep the eight-year-old economic expansion on track in the
months ahead.
The University of Michigan's final index of consumer
sentiment for this month was revised to 105.7 from the initial
estimate of 104.7. While down from February's record 108.1,
March's reading was the second-highest since last May and the
fifth straight above 100.
Rising consumer spending -- an outgrowth of the lowest
unemployment rate in 29 years, strong job growth and low
inflation -- is a key reason some economic forecasters have been
wrong in predicting an economic slowdown or even a recession is
in the works for 1999.
''It's just continued to surprise us, obviously,'' said
James O'Sullivan, an economist with J.P. Morgan Securities, who
last fall predicted the economy would go into recession this
year. O'Sullivan has since revised his forecast and expects U.S.
gross domestic product will grow by 2.1 percent this year,
continuing the expansion for the ninth year, the longest during
peacetime.
March's decline from February in the University of
Michigan's consumer sentiment index reflects a ''growing belief
among consumers that interest rates will rise in the year
ahead,'' said Richard Curtin, director of surveys.
Improvement in Finances
As a result, consumers expect the pace of economic growth to
slow, ''but only slightly,'' Curtin said. ''Importantly, the
majority of consumers still expected the economy to avoid any
recessionary downturn, not only next year but over the next five
years as well.''
Over half of all households reported their finances have
recently improved, and just 6 percent said they expected their
financial situation to worsen. ''Overall, the latest date
indicate that the outlook for consumer spending will remain
strong, with the pace of spending easing only slightly through
the balance of 1999,'' Curtin said.
Last week, the Dow Jones Industrial Average rose three times
above 10,000, a 30 percent leap from Aug. 31, when the index
plunged more than 500 points following Russia's default on its
debts. At the time, few market watchers were confident the U.S.
economy would fare as well as it has.
U.S. gross domestic product expanded at a 6.1 percent pace
in the final three months of last year after Federal Reserve
policy-makers cut the overnight bank lending rate to 4.75 percent
in three steps from September through November. Fed officials
said they were worried that financial markets had seized up
following Russia's default, threatening the U.S. and global
economies.
Little Inflation
Inflation also has shown few signs of accelerating. For the
first two months of the year, consumer prices rose at a 1.1
percent annual rate, matching the lowest inflation rate in 13
years.
Now, the majority of economists, include those at Federal
Reserve banks, have boosted their predictions for GDP for the
year in response to the strong first three months of this year.
''After three years of underestimating the U.S. economy's
ability to grow, it wouldn't surprise me to see it exceed
expectations for a fourth year,'' San Francisco Fed Bank
President Robert Parry said this week.
Parry and others don't have to search hard to explain their
reasoning.
The pace of new homes sold in the three months ended in
January was the third fastest on record. U.S. companies created
52 percent more jobs between December and February than
economists predicted. The number of unemployed workers filing
claims for jobless benefits was less than economists'
expectations for six straight weeks through March 12.
NAPM Index Gains
U.S. manufacturing also shows signs of improving. The
National Association of Purchasing Management's widely watched
index of factory activity last month rose above 50 for the first
time since May. The index climbed to 52.4 in February from 49.5
in January, exceeding expectations it would rise just to 50.
What really caught economy-watchers off guard was fourth
quarter GDP -- the broadest measure of economic output. The
consensus of economists was for a annual growth rate of 4.5
percent for the last quarter. In January, the Commerce Department
issued an early estimate of 5.6 percent GDP growth. That was
revised higher to 6.1 percent, and analysts now expect the final
estimate next week will come in at about 6 percent.
''A lot of people weren't banking on a recovery in stock
prices after they had fallen'' following Russia's default, said
Ian Shepherdson, chief U.S. economist at High Frequency Economics
Ltd.
Also, economists' models often didn't pick up the
acceleration of gains in worker productivity and the effects of
consumers' new-found wealth in stocks.
Productivity Growth
Some economists say corporations' heavy investment into
efficiency and productivity improvements are undermeasured and
have had a large effect on the economy's overall health and
resilience.
''Underlying productivity growth is so strong it is
allowing many industries to rise through rough times, said Brian
Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson
Inc. in Chicago.
Then too, many economists say that relatively mild weather
was an unforeseen boost to the economy. December through
February's average temperature made for the second-warmest such
period since 1895, according to the National Oceanic and
Atmospheric Administration.
Warmer temperatures ''clearly boost retail sales and
employment and not just construction,'' Morgan's O'Sullivan said.
Finally, economists tend to forecast on the conservative
side because ''no one likes to stick their neck out,'' said Dain
Rauscher Inc. senior economist Vincent Boberski.
A Delayed Slowdown?
Still, some economists say a slowdown is coming. It's just
been delayed. U.S. housing starts fell in February, for example.
And consumer spending may slow as taxpayers who owe Uncle Sam pay
up by April 15.
''Having got it wrong for so long now, I hope expectations
over the next few months will be closer to reality,'' said Ian
Shepherdson, chief U.S. economist for High Frequency Economics
Ltd. He has revised his forecast this year for GDP to 3.5 percent
from 2.7 percent, and says he wouldn't be surprised if the
economy grows as much as 4 percent. |
