Despite downsizing news and earnings warnings from high-profile technology and media firms, optimism is beginning to return to the national marketplace, led by trade organizations and private research firms that are beginning to see a break in the economic clouds. Do a few tiny rays of light mean sunshine and better days ahead?

Even with rising unemployment, consumer confidence is somewhat stable, mostly due to stable prices in goods, foods, and energy products. Consumer spending drives two-thirds of the U.S. economy, and to keep it humming, the Federal Reserve is expected to cut interest rates again by .25 basis points. This sixth cut, should it occur, puts the Fed near the end of its rate cutting cycle. Any further and the rate cuts would dip too closely to accepted inflation levels.

A key forecasting gauge from private research firm The Conference Board showed that the U.S. economy grew at the fastest clip since December 1999. The .5 percent rise in leading economic indicators outperformed many economists' expectations of a more modest .2 percent rise, prompting an optimistic statement from the company's chief economist, Ken Goldstein. "Latest readings suggest the U.S. economy may be poised for some recovery," Goldstein said in a prepared statement. ``Continued though modest strength in services and some limited recovery in manufacturing is a combination likely to deliver limited job, income and Gross Domestic Product growth over the next few months, barring any sudden economic shock.''

Also construed as positive was the small decline in housing starts, a marginal 0.4 percent in May to a seasonally adjusted annual rate of 1.62 million units, reported the Commerce Department. Both single-family and multifamily housing production decreased modestly by 0.2 percent and 1.5 percent, respectively, a slide no further than the same figures for May.

"Construction of new housing in the second quarter is holding up well and remains on par with last year's strong production pace," said Bruce Smith, president of the National Association of Home Builders.

Smith credits continuing low interest rates and strong appreciation in housing values for the small drop in starts. He expects the slowdown to continue but only modestly if the job market continues to slow.

"The housing market continues to outperform our expectations, considering the ominous signs in other sectors of the economy," he said.

Mortgage interest rates are about one and a half points less than they were a year ago, and below the rates last summer.

Published: June 21, 2001

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