Several key indicators yesterday raised hopes - however tentatively - that the current recession in the United States will be mild and not very lengthy.
Most importantly, American consumers, who drive two thirds of the economy, shopped at a record pace in October. On top of that, the rate of slowdown in manufacturing eased in November, though the country still recorded its 16th straight month of manufacturing decline. Further, construction spending climbed 1.9 per cent to $863.5 billion (€970.6 billion) in October, and, in welcome news for the technology sector both in the US and Ireland, the Semiconductor Industry Association said global sales of semiconductors rose 2.5 per cent in October and chip inventories were now largely in balance with prices rebounding.
It was still a bleak day on Wall Street. The markets fell as investors worried about rising tensions in the Middle East, soaring oil prices, the bankruptcy of energy giant Enron - the biggest in US corporate history - combined with a brewing financial meltdown in Argentina and the prospect of stalemate in Washington over a proposed economic stimulus package.
Americans have been encouraged to keep spending on consumer goods by widespread price discounting and zero per cent financing on automobiles. In October consumption spending surged by a record 2.9 per cent to $7.188 trillion. This more than compensated for a 1.7 per cent spending decline in September, largely due to the September 11th attacks. Taking into account a loss of 415,000 jobs in October analysts had expected only a 2.4 per cent rise.
The sobering news is that the potential for continued spending at the October rate is compromised by a fall in disposable incomes by 1.7 per cent in the month after a 1.2 per cent drop in September. Any sustained rise in spending will depend on a resumption of growth in wages and salaries, said economist Mr Joel Naroff.
The rise in construction spending after five straight monthly declines was also taken as a hopeful sign that the economy was finding a bottom, though it could partly be explained by higher lumber prices.
Manufacturing activity declined for the 16th straight month in November but at a slower pace than in October, according to the National Association of Purchasing Management. Its key Purchasing Managers Index rose to 44.5 from a 10-year low of 39.8 in October, beating market expectations but still below 50, which indicates the sector is contracting.
Analysts now hope the manufacturing sector can return to growth sometime during the April-June quarter of 2002. The New Orders index rose by 10.5, one of the sharpest rises ever, revealing growing strength in manufacturing.
Much of the pessimism on Wall Street came from the threat of greater instability in the Middle East after the suicide bombings and Israel retaliation, and a sudden increase in crude oil prices which could hinder growth.
Oil companies' stocks alone benefited as prices jumped 70 cents to $20.50 a barrel in New York trading because of the increase in violence and the possibility that Russia would comply with calls from the Organisation of Petroleum Exporting Countries for output cuts.
The fallout from the collapse of energy trader Enron also continued to spread through financial markets with bank stocks declining again.
The increase in sales of semiconductors came from rising demand for personal computers and cell phones in the US and Europe, according to the Semiconductor Industry Association.
