Economy in US shows signs of bouncing back

One of the big questions facing the US economy has been how long it would take to bounce back after the events of September 11th. From data released this week, the answer seems to have been just over two months.

US orders for manufactured goods rose sharply in October, the US Commerce department said yesterday, returning to summer-time levels. The labour market has gone from critical to stable.

The service sectors have shown unexpected growth. Investors have evidently assumed the economy has righted itself and that the end of the recession is in sight, and have been sending stocks higher.

A rally on Wednesday pushed the Dow above 10,000 for the first time in three months and the Nasdaq above 2,000 for the first time in four months, and it continued yesterday before slipping back in late trading. Swift progress in the war on the Taliban has helped lift the mood; so too has an assurance from Standard & Poor's, which evaluates corporate risk, that the collapse of Enron energy trading giant in Texas is unlikely to pose systemic risks to the global financial system or to threaten the survival of any exposed financial institution.

This view was endorsed by New York Federal Reserve president William McDonough, who cautioned yesterday however that he is unsure whether the worst is over for the economy, which slipped into recession nine months ago.

Increased demand for computers and military equipment boosted new factory orders for October by 7.1 percent, the biggest gain for 16 months and exceeding economists' expectations. Orders had declined 6.5 per cent in September. Even setting aside massive Defence orders for aircraft - $15.27 billion in October compared to $2.59 billion in September - overall orders were up 3.3 per cent in October.

Orders for computers and electronics were up 9.9 per cent after a 8.5 per cent fall in September.

Against this, US retailers reported the weakest sales growth for November since 1990, as the purchase of clothes was depressed by warm weather, lay-offs and deep discounting. Sales rose 2 per cent in November, half the rise recorded in October according to a survey of 77 US retailers by Bank of Tokyo Mitsubishi.

November and December are crucial for retailers, accounting for as much as one-quarter of their annual sales. Ominously, an American Express poll found that consumers plan to spend 7 per cent less this holiday season, down to $1,564 per household compared to $1,684 last year.