Anyone looking for signs of a long-anticipated slowdown in the booming U.S. economy found little evidence in a series of economic reports issued yesterday, which showed consumers stepping up their spending and manufacturers continuing to rebound from the Asian economic crisis.
Consumer spending posted its biggest jump since February, rising a stronger-than-expected 0.9 percent in August, as Americans continued to snap up big-ticket items such as cars, trucks and computers, according to the Commerce Department. That was more than double the 0.4 percent increase in July.
Driving consumers to continue their year-long spending spree was a 0.5 percent increase in personal income in August. Yet consumers still spent at a faster rate than their incomes climbed, which pushed the savings rate down to a record-matching low of minus 1.5 percent.
Manufacturers, meanwhile, notched their eighth straight month of growth, as exports of such goods as electronics, furniture and industrial equipment rose to Asia and elsewhere. The National Association of Purchasing Managers' index--a broad reading of activity in the nation's industrial sector--rose to 57.8 in September from 54.2 in August. A reading above 50 is the sign of a manufacturing expansion.
The bigger-than-expected gains surprised economists, foreshadowing stronger economic growth in the current quarter from the anemic 1.6 percent increase in the gross domestic product posted in the second quarter. Economists now anticipate GDP growth to return to a 3.5 percent to 4 percent rate for the three months just ended on Sept. 30.
The strong numbers also unnerved financial markets, which remain worried that Federal Reserve policymakers will have to raise interest rates at some point to cool down the economy.
The Dow Jones industrial average fell more than 140 points before recovering to finish down 63.95 points at 10,273. The yield on the benchmark 30-year Treasury bond rose sharply, to 6.13 percent from 6.04 percent on Thursday.
While most analysts do not expect the Federal Open Market Committee to raise rates when it meets Oct. 5, some worry that an increase will come early next year after worries over the year 2000 computer problem subsides.
"Make no mistake about it: What today's numbers . . . show is that there has been an undeniable change in the inflation environment," said Ken Mayland, chief economist for Cleveland-based KeyCorp. "What that means is, regardless of whether the Fed tightens next Tuesday or not, we are in a rising interest rate environment now."
Particularly troubling to some economists, and the stock and bond markets, was the purchasing manager's survey report of rising prices paid by manufacturers for their raw materials and other goods. The survey recorded a reading of 67.6, the highest since May 1995. Behind the rise was a spike in the price of oil and other commodities.
Although there is little or no sign yet that these higher prices are making their way into the prices paid by consumers at the retail level, the concern is that eventually they will be passed on. Still, inflation remains dormant, evidenced by the August consumer price index. Its "core" rate, which excludes volatile food and energy prices, is up just 1.9 percent over the past 12 months.
"That's the smallest increase we've seen in the core rate in over 33 years," said First Union Capital Markets economist Mark Vitner. "It's very hard for the Fed to raise interest rates when the core rate is that low."