Reports Point to Sound Recovery
U.S. manufacturing is on a firmer footing, reports released Friday showed, and combined with large productivity gains and better consumer sentiment, the data provided more evidence that a sound economic recovery is underway.
“The recovery in the manufacturing sector means that the weakest part of the U.S. economy is now on the mend,” said Mark Vitner, economist at Wachovia Securities.
Manufacturing in the Midwest jumped to a three-year high in May, according to the National Assn. of Purchasing Management’s Chicago branch. Its index surged to 60.8, the highest level since April 1999 and up from 54.7 in the previous month.
The May reading marked the fourth consecutive month above 50, which points to an expanding regional manufacturing economy.
Meanwhile, the Commerce Department said orders for U.S. manufactured items in April posted their biggest increase since October 2001, gaining a larger-than-expected 1.2% to $323.9 billion.
That report also showed that business investment, closely watched by economists because it is crucial for a sustained recovery, is on the mend.
Orders for machinery rose 4.5% in the month, the biggest rise since March 2000, while orders for electrical equipment and appliances rose 9.6%. Demand for computer and electronic products grew 3%.
“The third cylinder of the economic engine, capital spending, has really begun to fire, and this is a signal of improving business confidence,” said Sung Won Sohn, chief economist at Wells Fargo.
There was other good news for the economy. A Labor Department report showed productivity rocketed ahead in the first quarter, rising 8.4% as profit-seeking American businesses squeezed more out of their workers. This met expectations even though it was slightly below the previously reported 8.6% rise.
The productivity report showed little evidence of inflation with unit labor costs, a gauge of wage pressure, dropping 5.2%.
Consumers also are doing their bit to underpin the recovery. Another report showed sentiment rose in May to its highest level in 11/2 years as a steadily improving economy and a measure of calm in the Mideast helped lift consumers’ assessment of the present and future hopes.
The University of Michigan’s final May consumer sentiment index rose to 96.9 from 93 in April, beating expectations and slightly above the preliminary May reading of 96 released two weeks ago.
The good news could spur more talk that the Federal Reserve will tighten credit this summer, analysts said. However, Treasury bond yields showed only small increases Friday. The two-year T-note yield rose to 3.20% from 3.15% on Thursday.
