Economy Shakes Off War-Related Slump

Economy Shakes Off War-Related Slump Tue July 15, 2003 11:31 AM ET By Eric Burroughs NEW YORK (Reuters) - The U.S. economy showed more signs of bouncing back from its Iraq war-related slump, with retail sales accelerating in June and weekly reports suggesting consumer spending is perking up during the summer, reports showed on Tuesday.

Manufacturing in New York state also maintained much of its rebound in July, providing hope that the economy's hardest-hit sector will return to expansion this month.

The good news came as Federal Reserve Chairman Alan Greenspan told Congress the central bank would keep official interest rates low for a "considerable" amount of time to ensure economic growth speeds up and prevent a dangerous decline in prices.

The Fed cut rates in late June to just 1.0 percent, the lowest since 1958, in its aggressive bid to stem the slowdown in inflation and get the economy up to full speed.

The one ingredient still missing for a full-fledged recovery that would firmly leave the 2001 recession in the dust is stronger capital investment, which in turn would spur hiring.

But with the stock market rallying and other improvements in the economy, Greenspan said households and businesses were now "better positioned than they were earlier to boost outlays as their wariness about the economic environment abates."

Markets focused on Greenspan, whose comments left stocks mixed but drove up yields on long-term Treasuries as the bond market anticipates better growth.

Sales at U.S. retailers posted a healthy gain in June, the government said, lifting hopes for an acceleration in economic growth in the second half of the year from the current sluggish pace.

The Commerce Department said retail sales grew 0.5 percent to $310.42 billion in June after being flat a month earlier, the strongest gain since March. June sales excluding motor vehicles were up a stronger 0.7 percent after May's 0.1 percent gain.

Shoppers snapped up a variety of goods in June, with sales of furniture up 0.5 percent and purchases of sporting and hobby goods up 3.0 percent, the most since February 2001. Book sales were also robust, suggesting a Harry Potter-induced boom as the latest installment of the young wizard's story hit stores.

The one weak spot was auto sales, which slid 0.1 percent as consumers were increasingly uninspired by the heavy discounting and incentives automakers offered.

The numbers were close to Wall Street expectations of a 0.5 percent retail sales gain overall and a rise of 0.4 percent excluding autos.

Separately, two private surveys showed weekly sales beating retailers' expectations through mid-July, indicating the pace of sales is picking up.

Analysts expect U.S. consumer spending to be supported by continued low interest rates and a boost to paychecks from tax cuts in the economic stimulus package passed by Congress in May.

"It is not a blowout number, but it is encouraging to see relatively broad-based increases," Dana Johnson, head of research and managing director with Banc One Capital Markets in Chicago, said of the retail sales report. "Some of it is weather related, but there is a better pattern of underlying strength than we were expecting."

The economy grew at a sluggish 1.4 percent in the first quarter of the year and analysts expect only a slight pickup when second-quarter growth figures are released later this month.

The Bush administration later this month will start mailing about 25.4 million checks worth about $13 billion to middle-class families with children as part of an expanded child income tax credit in that package.

Another report Tuesday showed business conditions for New York manufacturers remained bright in July, although they eased a little from June's record level.

The Federal Reserve Bank of New York said its Empire State Manufacturing Survey eased to 22.6 in July from a revised 27.6 in June. The survey provides an early snapshot of factory activity during the month and has at times served as a leading indicator for other regional manufacturing measures, though it has a short history.

Of the survey's components, new orders remained at a high level while shipments rose solidly, suggesting production may be ramped up in coming months. But layoffs returned, with the employment measure falling to -8.6 from zero.

Confidence in the future remains good, with the six-month business outlook near the levels recorded before the war in Iraq, at 52.5 compared with 58.9 in June.

July is a traditionally a quiet month in Las Vegas but this year is different. It is very busy here this July.

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3 posted on 07/15/2003 9:01:19 AM PDT by Support Free Republic (Your support keeps Free Republic going strong!)

not only Daschle but Barney Frank was absolutely beside himself that Greenspan said the tax cuts were definitely helping the economy to improve and Maxine Waters nearly hit hysteria when he acknowledged businessmen he knows have told him privately they are putting their tax cuts to use improving their companies.

A Willie Green headline you will NEVER see:

Economy on rebound, hiring acclerates (12,900 jobs gained)
by Willie Green

6 posted on 07/15/2003 9:22:29 AM PDT by Lazamataz (PROUDLY POSTING WITHOUT READING THE ARTICLE SINCE 1999!)

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