New Data Indicates Brighter Economic Outlook : Rebound: Reports show an upturn in factory spending, consumer purchases and home building. Trade deficit also falls.

The prognosis for an economic recovery brightened somewhat with the release Monday of economic reports showing a strong rise in purchases by manufacturers, modest increases in construction and consumer spending and a reduction in the trade deficit.

The reports reinforced some of the more optimistic predictions that the manufacturing slump, which has contributed to corporate red ink and joblessness across the United States since last year, is headed for a rebound.

“It would appear the manufacturing sector, which went into a stall last Labor Day, has gotten a second wind,” said Lynn Reaser, chief economist for First Interstate Bancorp. “We may be seeing now a reversal of the weaker consumer spending and construction. And home building is emerging as a leading edge in the recovery.”

The good news centered on a survey conducted by the National Assn. of Purchasing Management, whose monthly index jumped to 52.4% in February from a 47.4% level a month earlier. The widely followed survey suggested that the manufacturing sector of the economy had resumed growing, as factory managers ordered more parts and materials.

The rise in the index was credited with higher bond yields in trading Monday, reflecting bolstered confidence in the economy.

“This is by far the most upbeat news on industrial production we’ve had in months,” said David Hensley, director of the UCLA Business Forecasting Center. “If it’s to be believed, it’s great news.”

The government also announced Monday the best increase in construction spending in nine months, which echoed earlier reports of a rise in housing starts in January. The Commerce Department said construction spending rose 1.3% in January, the first increase since October. Spending on residential, non-residential and government projects was at a seasonally adjusted annual rate of $404.1 billion, up from $398.9 billion in December.

Another Commerce Department report on consumer spending and personal incomes suggested some mixed signals about the economy. Consumer spending, a vital element to a sustained economic recovery, inched up 0.2% in January for the third straight monthly increase, the department said.

At the same time, however, personal incomes dropped 0.1%, the first decline since November, according to the report. The difference between spending and incomes contributed to a 5.3% savings rate in January, down from 5.5% in December but up from the 4.9% rate a month earlier.

“It’s a real mixed picture,” said Jack Kyser, chief economist at the Economic Development Corp. of Southern California. “Personal income is down but the consumer is out there shopping.”

Another report released Monday showed that the nation’s merchandise trade deficit shrank by almost one-third last year to $73.6 billion--the best trade performance since 1983.

The Commerce Department said that the gap between imports and exports was down from a 1990 deficit of $108.1 billion. For the final three months of the year, the deficit was $18.66 billion, a 10.5% improvement over a third-quarter deficit of $20.85 billion.

Despite the general upbeat reports, it wasn’t immediately clear whether Southern California would feel the stirrings of recovery.

For instance, the increase in the purchasing manager’s index might not relate directly to manufacturing in Southern California, where the structure of the regional economy is atypical, with a heavy reliance on the aerospace and defense industries.

“Our primary problem is in the declining defense industry,” Hensley said. “I doubt whatever it is that is boosting the national survey would also result in an uptake in Southern California.”

Kyser was also cautious about the rise in the plant purchasing index.

“That index has tracked the economy very closely, but you have to worry about another false start,” Kyser said. “On the surface it looks like good news, but it’s very important what happens the following month. We need a string of these to show we’re not experiencing a Jekyll-and-Hyde economy.”

First Interstate’s Reaser was more optimistic: “I think some of that increase in orders will come to Southern California and provide some cushion to the decline in the defense sector.”

Signs of Recovery The purchasing management’s monthly index, a key manufacturing barometer, climbed out of recession territory, in Feburay and the construction industry enjoyed its best monthly increase since last spring.

Purchasing Manager’s Index The purchasing manager’s index tracks overall business activity at 300 industrial companies. Feb., 1991: 39.1% Feb., 1992: 52.4% Source: National Assn. of Purchasing Management

Construction Spending Annual rate, billions of dollars, seasonally adjusted Jan., ‘92: 404.1 Dec., ‘91: 398.9 Jan., ‘91: 406.5 Source: Commerce Department