Manufacturing and Construction Growth Is Steady
Key economic reports released Wednesday show signs of strength in manufacturing, construction and the overall economy, suggesting growth is steady and concerns about recession that caused much hand wringing are no longer much of a threat.
The reports indicate the economy is sticking to the course of moderate growth and low inflation charted by Federal Reserve Board Chairman Alan Greenspan--a course that has thrilled Wall Street and driven stock prices to dizzying heights.
A monthly survey of purchasing executives shows manufacturing activity improved in April for the first time since the summer. The government reported that construction spending shot up in March.
An index designed to forecast economic activity six to nine months in advance also showed a March rise, its second in a row.
“This is what the doctor ordered--Dr. Greenspan,” said Sung Won Sohn, chief economist at Norwest Corp., a Minneapolis-based banking company.
Greenspan’s prescription for the economy has brought the results he was seeking. By raising, then lowering, short-term interest rates, the Fed chairman appears to have guided the economy to a “soft landing,” where economic growth is sustained.
A number of economists had been predicting an imminent recession earlier this year, right up until early March when the government reported more than half a million jobs were created in February.
Strong employment numbers the following month validated that belief, along with other data, including Wednesday’s figures.
The number that had the biggest impact, at least on Wall Street, was the National Assn. of Purchasing Management’s manufacturing index. It improved to 50.1 in April from 46.9 in March, the first time since July that it has risen above 50.
The result was seen as encouraging but not stellar. Readings above 50 represent expansion in manufacturing.
“What the data did indicate was continued slow growth in the manufacturing sector, some pickup, but not the pickup that had been feared,” said Marilyn Schaja, money market economist at Donaldson, Lufkin & Jenrette Securities Corp.
A report Tuesday from Chicago-area purchasing managers had been strong and raised concerns that the purchasing managers number would show an economy that was overheating.
That would create worries about rising inflation, a bugaboo for the stock and bond markets because it tends to make bonds worth less and might prompt the Fed to raise interest rates, which would slow borrowing, spending and eventually the entire economy.
Inflation concerns were eased, however, by the purchasing report, which showed a decline in prices paid by manufacturers for raw materials.
Also Wednesday, the Commerce Department reported that construction spending rose 3.1% in March, the biggest gain in four years.
Schaja and other economists said that although a housing boom is not expected, the improvement was heartening.
Prospective homeowners had some good news too, with the National Assn. of Realtors reporting its housing affordability index improved for the first three months of the year.
And the Conference Board reported that its index of leading economic indicators rose 0.2% in March, marking its first consecutive monthly gains in 1 1/2 years and its highest level in a year.
The private research group said the improvement followed an increase of 1.3% in February and a revised drop of 0.6% in January.
“With the NAPM performance and the leading indicators and the employment growth we’ve seen over the past couple of months, we don’t have to worry about an imminent recession,” said Peter Jaquette, senior economist at the WEFA Group, an economic consulting firm.
The last time the leading index rose twice in a row was November and December 1994.
Leading Indicators
Seasonally adjusted index; 1987=100
March 1996: 101.7
Source: Commerce Department
