NEW YORK (Reuters) - Largely encouraging data covering consumer confidence, spending and Midwest manufacturing suggest that the economy is not only recovering but expanding despite weak employment numbers.
"All the data's saying the same thing: this quarter is going to be a cracker," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets. He expects gross domestic product growth of 6 percent to 7 percent this quarter.
Chicago-area manufacturers and businesses reported the fastest expansion in August in 15 months, contrary to forecasts of a slight pull-back. They also added to payrolls for the first time since March 2000.
That suggests factories nationwide may be on the verge of faster growth and should start adding to payrolls in the sector that has suffered the most during the recession and sluggish recovery. This report comes on the heels of Thursday's news from Ford Motor Co. F.N that it had very strong sales in August.
The labor market remains the one weak spot, and the ongoing layoffs have taken a toll on consumer confidence. The University of Michigan's sentiment index retreated slightly in August to a final reading of 89.3 from 90.9. But the Chicago report suggested that is about to change.
Even in the face of job anxiety, households eagerly spent on everything homes and cars to clothes. Some economists believe personal consumption could turn in its best performance in 15 years during the July to September quarter.
The panoply of positive news in recent weeks now has many economists hiking growth forecasts for the third quarter to as high as 5 percent and 6 percent, which means the economy could put in its best performance since the height of the boom, when it expanded at a unusually brisk 7.1 percent in late 1999.
Friday's data had little lasting impact on the stock and bond markets.
The Chicago purchasing managers' index jumped to 58.9 in August from 55.9 in July, and signs are for that swift pace of growth to continue. New orders for goods keep piling in, even as the index slipped to 60.5 from 61.7, while production jumped to 61.6 from 58.4. Even backlogs of orders rose.
"This report makes it very clear that the manufacturing recovery is gathering pace," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Helped by tax refund checks sent to many households and reduced tax deductions this summer from the $350 billion tax cut, personal spending jumped 0.8 percent in July, while spending in June was revised up to a 0.6 percent gain from 0.3 percent.
Disposable personal income, which strips out the impact from taxes and other bills, soared 1.5 percent as a result of the tax cuts. But without the tax cut, income would have increased a more meager 0.2 percent.
When adjusted for inflation, which matters most in GDP estimates, personal consumption climbed a real 0.6 percent. The higher revisions to prior months put spending on an even stronger track than first thought, and recent numbers show spending is speeding up.
At a gathering of central bankers Federal Reserve Chairman Alan Greenspan rejected suggestions the Fed should adopt explicit policy rules like inflation targets, but should maintain its flexibility.
Even with yet more good economic news pouring in, Greenspan avoided discussing the data.
Ford said its U.S. new car and truck sales could hit an annual rate of 18.2 million to 18.7 million, which would be the strongest pace this year. That remarkable performance implies another hefty gain in retail sales for August and a spectacular third quarter for consumption.
"Consumer spending (growth) should reach an annualized pace of around 7.0 percent," noted David Sloan an economist at 4Cast -- the strongest since 1988.
Reuters
"All the data's saying the same thing: this quarter is going to be a cracker," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets. He expects gross domestic product growth of 6 percent to 7 percent this quarter.
Chicago-area manufacturers and businesses reported the fastest expansion in August in 15 months, contrary to forecasts of a slight pull-back. They also added to payrolls for the first time since March 2000.
That suggests factories nationwide may be on the verge of faster growth and should start adding to payrolls in the sector that has suffered the most during the recession and sluggish recovery. This report comes on the heels of Thursday's news from Ford Motor Co. F.N that it had very strong sales in August.
The labor market remains the one weak spot, and the ongoing layoffs have taken a toll on consumer confidence. The University of Michigan's sentiment index retreated slightly in August to a final reading of 89.3 from 90.9. But the Chicago report suggested that is about to change.
Even in the face of job anxiety, households eagerly spent on everything homes and cars to clothes. Some economists believe personal consumption could turn in its best performance in 15 years during the July to September quarter.
The panoply of positive news in recent weeks now has many economists hiking growth forecasts for the third quarter to as high as 5 percent and 6 percent, which means the economy could put in its best performance since the height of the boom, when it expanded at a unusually brisk 7.1 percent in late 1999.
Friday's data had little lasting impact on the stock and bond markets.
The Chicago purchasing managers' index jumped to 58.9 in August from 55.9 in July, and signs are for that swift pace of growth to continue. New orders for goods keep piling in, even as the index slipped to 60.5 from 61.7, while production jumped to 61.6 from 58.4. Even backlogs of orders rose.
"This report makes it very clear that the manufacturing recovery is gathering pace," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Helped by tax refund checks sent to many households and reduced tax deductions this summer from the $350 billion tax cut, personal spending jumped 0.8 percent in July, while spending in June was revised up to a 0.6 percent gain from 0.3 percent.
Disposable personal income, which strips out the impact from taxes and other bills, soared 1.5 percent as a result of the tax cuts. But without the tax cut, income would have increased a more meager 0.2 percent.
When adjusted for inflation, which matters most in GDP estimates, personal consumption climbed a real 0.6 percent. The higher revisions to prior months put spending on an even stronger track than first thought, and recent numbers show spending is speeding up.
At a gathering of central bankers Federal Reserve Chairman Alan Greenspan rejected suggestions the Fed should adopt explicit policy rules like inflation targets, but should maintain its flexibility.
Even with yet more good economic news pouring in, Greenspan avoided discussing the data.
Ford said its U.S. new car and truck sales could hit an annual rate of 18.2 million to 18.7 million, which would be the strongest pace this year. That remarkable performance implies another hefty gain in retail sales for August and a spectacular third quarter for consumption.
"Consumer spending (growth) should reach an annualized pace of around 7.0 percent," noted David Sloan an economist at 4Cast -- the strongest since 1988.
Reuters
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