NEW YORK (CNN/Money) -
A closely watched measure of consumer sentiment in the United States was stronger in May than initially thought Friday, as the backbone of the world's largest economy continued to hold up under a weak labor market, terror threats and more.
Separate reports showed strength gathering in the manufacturing sector, hinting that a rebound in business spending might be underway, just in time to help consumers shoulder the burden of the recovery.
The University of Michigan's consumer sentiment index, available only to paying subscribers, was revised to 96.9 in May from 93.0 in April, according to a Reuters report. The index was previously reported at 96.0, and economists surveyed by Briefing.com did not expect it to change.
"The resiliency of the consumer is very impressive in the wake of so many terror warnings," said Anthony Chan, chief economist at Banc One Investment Advisors. "One cautionary note is that, moving forward, these numbers may soften, as those warnings are still coming."
In an even more encouraging report, purchasing managers in Chicago said their index of manufacturing activity in the Chicago area jumped to 60.8 in May from 54.7 in April. Economists surveyed by Briefing.com expected the index to rise to just 55.
And the Commerce Department said orders for goods made in U.S. factories rose 1.2 percent in April after rising 1.0 percent in March. Economists surveyed by Briefing.com expected orders to rise just 0.7 percent.
"The third cylinder of economic growth is beginning to fire," said Sung Won Sohn, chief economist at Wells Fargo & Co. "The other two cylinders are inventory swings and consumer spending. Outside of telecommunications and airplanes, business capital spending has begun to improve already, beginning in the first quarter."
Earlier, the Labor Department said U.S. productivity -- a key measure of worker output per hour -- rose at a revised 8.4 percent annual rate in the first quarter after growing at a 5.5 percent rate in the fourth quarter. Output grew 6.1 percent, while worker hours fell 2.1 percent, the seventh drop in the past eight quarters.
It was the best performance for productivity since a 9.9 percent gain in the second quarter of 1983. The government initially thought productivity grew 8.6 percent in the quarter. Economists surveyed by Briefing.com did not expect that estimate to change.
"Corporate America is on the mend. The only downside of stronger productivity growth is that it means hiring is lagging," said Mark Vitner, senior economist at Wachovia Securities. "As far as downsides go, this is roughly the equivalent of eating your broccoli. It may be tough to stomach at first, but it makes you stronger and healthier in the long run."
U.S. stock prices rose in early trading, gaining strength after the manufacturing reports. Treasury bond prices fell.
Consumers holding strong
Though consumer spending makes up about two-thirds of the U.S. economy, Federal Reserve Chairman Alan Greenspan and other economists have cited business spending as the key to the strength of the economy's recovery from a recession that began in March 2001.
A dramatic drop in business spending in 2001 led to the broader recession and more than a million job cuts. With productivity high, corporate profits in a prolonged slump and demand from other businesses weak, businesses have been reluctant to increase production and hire new workers, despite early signs that the recession is over.
The result has been an unemployment rate that rose to 6 percent in April, and economists expect the Labor Department to report next Friday that it rose again in May to 6.1 percent. It could linger at that rate for months if business spending does not pick up significantly, leading to another "jobless" recovery like the one that followed the 1990-91 recession.
Despite the signs of a sluggish recovery, consumers' view of the current state of the economy was revised upward to 103.5, compared with 99.2 in April, according to reports about the University of Michigan survey. The index of consumer expectations was revised strongly upward to 92.7 from a previous estimate of 91.3, according to the report. The expectations index was 89.1 in April.
|
Related links
| |
| |
| | |
|
"Consumers are maintaining their 'resilient credentials,' as evidenced by today's impressive results," said Chan of Banc One. "Consumers will hold up the economy and prevent anything resembling a double-dip [back into recession]."
Chan also pointed out that the gain in productivity should help fight the inflationary effects of a weakening dollar, allowing the Fed to keep its target for short-term interest rates low. The central bank cut rates 11 times in 2001, but has left them alone this year and could keep them at 40-year lows until much later in the year, to avoid snuffing out the nascent recovery.
|