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Sat, Mar 30, 2002 - Page 21 News List

US economy steaming ahead

`TURNING A CORNER' Several newly-released statistics, including GDP figures and consumer sentiment, suggest the US economy has rebounded sooner than expected


A slew of data released on Thurs-day showed the US economy steaming ahead in February and March and revealed that it entered this year with more momentum than previously thought.

"It's all consistent with the view the economy is turning a corner," said Mike Moran, chief economist with Daiwa Securities America.

Consumer sentiment improved in February, according to polling data from the University of Michigan. There was good news for the manufacturing sector as well, with a report by Chicago-area purchasing managers showing Chicago-area manufacturing activity was unexpectedly strong in March.

Labor market readings were mixed. While the private-sector Conference Board's monthly track of help-wanted advertising rose in February, showing an improving job market, the Labor Department said initial claims for unemployment benefits rose in the week ended March 23, defying expectations for a fall.

Finally, the Commerce Department reported economic growth in the fourth quarter of last year was stronger than previously thought, rising at a 1.7 percent annual pace instead of the 1.4 percent rate in the prior estimate. While after-tax profits of companies slid, they actually rose prior to an adjustment by Commerce for recent economic stimulus legislation.

The economy fell into a shallow recession in March last year. But unlike most prior slumps, it posted only a single quarter of shrinking output, during the third quarter. With recent data more encouraging, the Federal Reserve has said risks to the economy are now evenly balanced between a return to weakness and a rise in inflation.

Thursday's GDP was further evidence the economy bounded back sooner than had been thought. But for last year as a whole, the economy grew at a mild 1.2 percent annual rate, the slowest annual pace since the recession in 1991, when the economy shrank by 0.5 percent.

The corporate profits report also offered reason to hope that firms will have more to spend on plants and equipment ahead, which would be a turnaround from four straight quarters of falling business investment and would bode well for the recovery's sustainability.

The Commerce Department said after-tax corporate profits fell by US$50.4 billion in the fourth quarter, the sharpest drop since the first quarter of 1998.

But those figures were adjusted to account for the recently enacted economic stimulus bill which gave firms expanded write-offs for some investments made since the Sept. 11 attacks and enhanced their ability to use operating losses from previous years to cut tax bills in the future. The department said the effect was to reduce companies' profits, at least from a taxation perspective. Without that adjustment, the department said after-tax earnings would have risen by US$60.8 billion.

Thursday's reports reinforced economists' forecasts that first-quarter growth was near the 5 percent area. But corporate profitability remains a large question mark for the outlook.s

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