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US Economy on the Rebound? - 2002-01-31

U.S. consumers are becoming more confident, factory orders are rising, and it looks as though the U.S. economy expanded slightly during the fourth quarter of 2001. A series of positive economic reports released this week indicates the U.S. economy might be pulling out of recession.

Statistics are for economists what body temperature and blood pressure are for physicians - vital signs that add up to a diagnosis of health or sickness.

Hofstra University economics professor Irwin Kellner ponders the latest data, and forecasts better economic times on the horizon.

"I think that business will quickly switch from inventory liquidation to at least holding the line, and that will add several percentage points to overall economic growth," he said. "Let us not forget the government is going to be spending much more money on defense and homeland security, and energy prices remain low, so there is every reason to expect that once this recovery takes hold, it will last."

That would make the "recession" that started in the middle of last year a very mild one. That is good news, Mr. Kellner says, and not good news at the same time.

"In a mild recession, demand remains fairly strong, so there is not much pent up demand once economic recovery gets under way," he said. "So a mild recession tends to lead to a mild recovery. Expectations for profit improvement should be modified somewhat. It also means that the unemployment rate may rise for a few months before it tops out."

About 1.5 million Americans have lost jobs in the economic downturn. Tom Silvieri, CEO of the human resource firm Drake Beam Morin agrees that most employers will wait before they begin increasing payrolls.

"I would call them 'cautiously optimistic,'" he said. "They are holding off hiring now, but I suspect at the end of the first quarter [or 2002] we are going to see that start to roll again."

But College of William & Mary economics professor William Rodgers says it is what consumers do in the months ahead that will have the greatest impact on economic health.

"For the economy to really turn around and meet the forecasters' expectations of a recovery, we need to see household families' confidence boost back up," he said. "They are two-thirds of gross domestic product and that is what really kept the economy going even after investment started to slow."

U.S. consumer confidence rose in January for the second month in a row. Mr. Rodgers says economists will be watching February's confidence index very closely.