Encouraging signs emerging

WASHINGTON — Fresh signs emerged Monday that the recession is letting up.

Manufacturing's slide is slowing. Builders are boosting spending on construction projects, including homes. And consumers aren't cutting back as much as some had feared.

"What looked like a flicker of light at the end of the tunnel is now starting to look like a beacon," said Richard Yamarone, economist at Argus Research. "We are no longer in the deep throes of recession. A recovery may be just a few months away."

Economists were especially heartened by a report from the Institute for Supply Management that showed U.S. manufacturing activity shrinking at a slower pace in May. Reports from Asia and Europe indicated similar improvements in their manufacturing sectors.

The institute's index came in at 42.8, its highest since September and up from 40.1 in April. A reading below 50 still indicates activity contracted, but the figure surpassed economists' forecasts.

Moreover, an index of new orders placed with U.S. factories rose to 51.1 in May. It was the first time this barometer had grown since November 2007, the month before the recession began.

And businesses' inventories shrank, suggesting supplies will soon need to be replenished. That would boost factory production, aiding overall economic activity.

"The data add to mounting evidence of an abatement in the deep factory-sector recession," said Cliff Waldman, economist at Manufacturers Alliance/MAPI, a manufacturing research group.

"The worst has clearly passed for U.S. factories," he said. "Nonetheless, a real recovery might be months away. The global economic picture remains difficult, and financial conditions are still problematic. But better days are clearly ahead."

Another report, from the Commerce Department, said construction spending rose a surprising 0.8 percent in April. Economists had been expecting a 1.2 percent decline.

It marked the second straight month that construction spending has risen. Before that, spending had fallen for five straight months. Private builders in April increased spending on housing projects, something that hadn't happened since August.

A third report showed consumers trimmed spending by 0.1 percent in April, slightly less than the 0.2 percent reduction economists were forecasting. Still, it marked the second straight month that consumers cut back, a reminder that many shoppers remain wary.

With unemployment rising, consumers are expected to stay fairly cautious in the months ahead. Because consumer spending accounts for roughly 70 percent of overall economic activity, it's closely watched by economists.

Americans' incomes, the fuel for future spending, jumped 0.5 percent in April, after two straight months of declines.

The improvement resulted from tax cuts and benefit payments flowing from President Barack Obama's stimulus package, the government noted. Wages and salaries were flat in April.

All three reports, though, reinforced analysts' beliefs that the economy isn't sinking nearly as much now as it was in the prior six months.

Forecasters at the National Association for Business Economics, or NABE, predict the economy will contract at a 1.8 percent pace in the April-June quarter.

Other analysts think the economic decline could be steeper, around a 3 percent pace. Some think it could be less, about a 1 percent pace.

The expected improvement would come from less drastic spending cutbacks by businesses. And companies could start to rebuild razor-thin inventories.

In the first quarter, the economy contracted at a 5.7 percent pace.

That followed a staggering 6.3 percent annualized drop in the fourth quarter of 2008, the biggest in a quarter-century.