Saturday, February 15, 2003

Economy might be shaking the flu

Key data show spike in January

By Jeannine Aversa
The Associated Press

WASHINGTON - Big industry broke out of the doldrums in January, turning in its strongest performance in six months, and businesses boosted stockpiles in December to satisfy consumers' appetites. They're promising signs for a struggling economy.

Production at the nation's factories, mines and utilities, which had been mired in a funk, shot up by 0.7 percent last month, the Federal Reserve reported Friday. That was a turnaround from the steep drop of 0.4 percent registered in December and marked the best showing since July.

The industrial sector, hardest hit by the 2001 recession, has been the biggest drag on the economy's struggle to get back to full throttle. But the Fed's report offered hope that the battered sector may be seeing better days ahead.

"The broad-based improvements in manufacturing output point to a revival in that sector," Joel Naroff, president of Naroff Economic Advisors said.

In other encouraging news, businesses increased inventories of unsold goods in December by 0.6 percent, twice as big as November's rise and the eighth month in a row that supplies were boosted, the Commerce Department reported. Businesses' sales rose 0.2 percent in December, up from a 0.1 percent rise.

"The U.S. economic patient is still not totally healthy. It, however, has avoided the worst ravages of the flu and seems to be showing some signs of recovery," said Lynn Reaser, chief economist at Banc of America Capital Management.

"The flu season is still not over, and the economy could see some near-term setbacks. However, over the next few months, the patient should regain its strength."

Consumers, businesses and investors have been shaken by fears of war with Iraq and the possibility of fresh terror attacks on the United States. Those worries could cause a pullback in consumer and business spending, which would deal a setback to the recovery.

A preliminary report showed on Friday that the University of Michigan's consumer sentiment index sank to 79.2 in February, down from 82.4 in January.

The economy has been coping with uneven growth as a quarter of strength has been followed by three months of weakness. And businesses have been struggling, especially, to try to gauge demand for their goods during these muddled economic times.

The biggest factor holding back the economy's recovery is the reluctance of businesses to make big commitments in hiring and in capital spending, partly because of uneasiness about war and generally to an uncertain business environment.

The Federal Reserve's report Friday showed that production at factories, which account for most industrial output tracked by the Fed, rose by a solid 0.5 percent in January, largely reflecting a boost in automobile production. That marked a big improvement over the 0.4 percent drop in factory output registered in December.

Production at gas and electric utilities rose 4 percent last month, compared with a 1.4 percent drop in December, as demand was stoked by colder weather.

At mines, however, production fell 1.2 percent, more than reversing a 1 percent gain posted in December.

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