Factory output, low prices give economy boost
WASHINGTON (AP) – The economy appears to be settling into a period of moderate but enduring growth.
Factories are producing more goods, retail prices are low, and the malls are full ahead of the holidays.
Still, the housing market remains a major drag on the economic recovery. Builders, who are competing with millions of foreclosed properties, are pessimistic about their prospects over the next six months.
The latest government and private-sector reports support a more optimistic but measured view that the economy is growing at a faster rate, and that 2011 will be better than most economists thought just months ago.
In addition to the improved data, Congress is on the cusp of passing a package of tax cuts and an extension of emergency unemployment benefits. That will put more money in the pockets of consumers and businesses.
“This is all consistent with an economy that is getting back on track and developing momentum going into next year,” said Carl Riccadonna, an economist at Deutsche Bank.
Manufacturers have been a major reason for the momentum.
Factory output grew 0.3 percent in November, the fifth straight month of gains, the Federal Reserve said Wednesday. Production of computers, industrial equipment, appliances and electronic goods all rose. That’s evidence that companies and consumers are spending more, economists said.
Factory output has recovered by 10.6 percent since its low point in June 2009, according to Steven Wood, chief economist with Insight Economics LLC. Still, it remains 9.1 percent below its peak in April 2007.
Riccadonna noted that businesses will get a tax break for buying new equipment next year, under the tax agreement hammered out between President Barack Obama and congressional Republicans. That measure passed the Senate Wednesday and is now headed to the House. If approved, that could spur further business investment, Riccadonna said.
Consumers would also benefit, and many are already increasing their spending. Retail sales rose in November, the fifth straight monthly gain. That’s a sign the holiday shopping season will be a healthy one.
One reason for that is tame inflation. Consumer prices barely changed in November, the Labor Department said Wednesday. Small increases in food and energy costs pushed the Consumer Price Index up 0.1 percent.
Excluding food and energy costs, core consumer prices rose 0.1 percent, the first increase in four months. In the past year, the core index rose 0.8 percent. That’s slightly higher than October’s 0.6 percent annual increase, which was the lowest since the index began in 1957.
Prices have stabilized since the summer, when the index dropped for three straight months. That raised fears of deflation, a prolonged and debilitating drop in prices, wages and the value of stocks, homes and other assets. But since then, the index has increased for five straight months.
Food prices rose slightly last month, mostly because of to higher costs for meats, eggs and fish. Cereals, baked goods and nonalcoholic beverages also rose substantially.
Gas prices increased 0.7 percent, driving energy costs up for the fifth straight month.
Most Americans won’t feel much better about the economy until they see more jobs and the 9.8 percent unemployment rate begins to fall.
President Obama pressed 20 leaders from the nation’s largest companies to help with job creation on Wednesday. He wants them to invest some of the more than $1.9 trillion in untapped corporate cash in the economic recovery.
Many economists expect to see at least some increase in hiring in the months ahead. That would reverse a disappointing showing in November, when employers added a net total of only 39,000 jobs.
“This industrial recovery has gone on long enough that we should see more hiring going forward,” said Joel Naroff, president of Naroff Economic Advisors.
Home builders don’t share the optimism, however. The National Association of Home Builders said Wednesday that its monthly reading of builders’ sentiment remained unchanged in December at 16.
While that’s the highest reading since June, any reading below 50 indicates negative sentiment about the market. The index hasn’t been above that point since April 2006.
Builders are anticipating fewer sales in December than most years, said NAHB Chairman Bob Jones. That’s mostly because of competition from sharply discounted foreclosed homes, tighter lending standards and poor overall job growth. December is traditionally one of the slowest times for sales.
The NAHB anticipates an improving job market will help buoy consumer confidence in the spring and lift sales by then.
Weak sales mean fewer jobs in the construction industry, which normally helps power economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the builders’ trade group.