Don't worry, be bullish
Five reasons why you should be happy about where the economy's going.
February 27, 2002: 9:05 a.m. ET
By Staff Writer Mark Gongloff
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NEW YORK (CNN/Money) - Is it any wonder some people are still skeptical that the U.S. economy is out of the woods? Jobs are scarce, debt is piling up and there seems to be another Enron under every rock.
But forget about all that for just a minute. Here are five signs that economists say are proof that the light at the end of our recessionary tunnel is not an oncoming train.
Or, if you're one of those people who just refuse to be cheered up, you might want to skip directly to the latest column by Allen Wastler, CNN/Money's official nattering nabob of negativism.
The resilient consumer
Consumer spending is the $6-trillion dollar engine of the $9-trillion dollar U.S. economy. Even when that economy faltered in the third quarter of last year, shaken by the Sept. 11 terror attacks, consumer spending kept rising.
Though the Conference Board's latest reading on consumer confidence was surprisingly glum, economists pointed out that confidence data are notoriously volatile, especially in periods of end-of-recession job-cutting.
"The two-steps-forward, one-step-back sequence is not at all uncommon for the Consumer Confidence Index during the early stages of an economic recovery," said Wachovia Securities economist Mark Vitner.
In fact, the Conference Board and University of Michigan consumer sentiment gauges rose and fell dramatically last year, but spending hardly wavered. For example, retail and food-services sales rose 4.3 percent last year, compared with a 3.3-percent gain in 2000. Consumers are voting with their wallets and should continue to do so, according to most economists.
Home sweet home
One commodity consumers bought with great gusto was housing. A robust market, fueled by low mortgage rates, boosted home prices, lifted homeowners' assets and helped consumers weather terror attacks and falling stock prices.
And that market has shown no signs of cooling off any time soon. The pace of new home construction in January was its highest in nearly two years. And the January pace of existing home sales shattered records for a one-month pace and a month-to-month acceleration.
"Okay, mild weather helped, but let's get real," said Joel Naroff, chief economist at Naroff Economic Advisors. "People don't go out and buy houses if they are worried about the future, even if mortgage rates are fairly low and the sun is shining brightly."
The stalwart Fed
The consumer's best friend last year was Alan Greenspan. The Federal Reserve chairman led the central bank to cut its target for short-term interest rates 11 times in 2001, a record for a calendar year, to the lowest level since the Kennedy administration.
Economists differ on the lag time for Fed policy actions to take effect Some say it's nine months, some say a year and others say more than a year. But assuming a nine-month lag time, a whopping six of the Fed's 11 rate cuts haven't even hit the economy yet.
While the Fed wasn't exactly brimming with confidence about a recovery when it decided in January to stop cutting rates, its decision to take a breather is a strong hint that the hemorrhaging has at least stopped.
What inflation?
Many economists are even betting that the Fed is so confident about an economic recovery that it will start raising rates again, maybe in the summer, in an effort to keep inflation at bay.
So far, though, inflation has been a distant, unpleasant memory, and companies have cut their labor costs and improved productivity during this downturn, meaning prices will be less likely to rise in the future. Low prices encourage consumer spending and allow the Fed to keep interest rates lower.
The amazing shrinking inventories
But low prices aren't great news for businesses, and the health of U.S. businesses may be the crux of the economic recovery.
After all, it was a drop-off in business spending in 2000 and 2001 that triggered the current recession. Companies woke up after the spending orgy of the late 1990s and found they had too many unsold goods on their shelves and unused machines in their factories.
To fight off the hangover, companies slowed down production, leading to more than a million job cuts and a recession in the manufacturing sector that's lasted more than a year.
That was bad news for the broader economy, but the good news was that businesses slashed their inventories of unsold goods to levels not seen since November 1999. With inventories at reasonable levels, businesses will be free to increase production - and hire more workers - when demand picks up again. 
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