By Robert J. Sheehan II Economic Indicators

An economic recovery may be coming earlier than expected. Prospects for a recovery were enhanced by a 1.2% rise in the Conference Board's Index of Economic Indicators for December. It was the largest increase since February 1996 and marks the third straight month of improvement. Ten indicators make up the Index: average weekly initial claims for unemployment insurance, interest rate spread, money supply, average weekly manufacturing hours, index of consumer expectations, building permits, stock prices, vendor performance, and manufacturers' new orders both for non-defense capital goods and for consumer goods and materials.

Consumer Confidence Still Climbing

Further support for an economic recovery comes from the rise in the Consumer Confidence Index in January. The Index rose to 97.3 (up from 94.6 in December) and is now above the September level. The Expectations Index, which measures consumers' outlook for the economy six months from now, is at 96.9, 27 points higher than in October.

Labor Loosens

A 9.4% unemployment rate among construction workers, the highest rate since March 1997, reduced pressure for compensation cost increases. Total compensation costs per employee were up 4.3% in the fourth quarter of 2001 vs. 5.8% a year earlier. Wages and salaries were up 4.0% in the fourth quarter vs. 5.3% a year earlier.

Remodeling Activity

Residential improvements and repair spending occurred at a $157.2 billion annual rate vs. $165.9 billion in the second quarter, according to the U.S. Department of Commerce. The drop was not statistically significant, and we still estimate that remodeling and repair spending rose 8% last year.

Disposable Income

Personal income rose in December by 0.4% (inflation adjusted), the first increase in four months. For the 12 month period ending in December, income was up a very strong 3.7%, providing a strong base to support increased remodeling activity when the economy recovers.