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Reports: Signals of better times ahead

Published April 26, 2010 4:13 pm

Economy » Bellwether Caterpillar, forecasters optimistic about recovery, job creation.
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Two reports out Monday provided further signs there are significant improvements in the economy, domestically and abroad.

Caterpillar Inc., the world's largest maker of construction and mining equipment, said it is ramping up production as the recovery spurs demand for its heavy equipment, especially in commodity-rich developing countries.

Caterpillar's iconic yellow-and-black machinery is sold in so many places and used by so many industries worldwide that its results are considered an indicator of the economy's overall health.

On another front, economists are growing more optimistic about prospects for growth this year as industries increasingly report better profits and add new jobs, though they still expect the recovery to remain slow, a new survey shows.

Seventy percent of those recently surveyed by The National Association for Business Economics believe real GDP will grow by more than 2 percent this year, up from 61 percent who said the same in January. Twenty-four percent are predicting real GDP will grow by more than 3 percent in 2010, up from 14 percent earlier this year.

"We're in a revival. There's no doubt about it," said Caterpillar's Chief Financial Officer Dave Burritt said. "We're heading up, and it's driven by the emerging markets. No doubt."

The company offered an upbeat outlook for its business after reporting first-quarter earnings Monday of $233 million, reversing last year's loss in a quarter weighed down by layoff costs.

The jump in demand Caterpillar is seeing -- particularly in developing regions such as Asia and Latin America and for mining equipment worldwide -- won't necessarily translate quickly into many U.S. jobs because the company has some excess capacity. But the company has hired back about 2,000 people since eliminating 19,000 full-time jobs and about 18,000 contract and part-time workers last year.

Caterpillar's results echo that of other big companies such as Intel Corp. and Whirlpool Corp., which have turned in stronger earnings for the first three months of the year and predicted global growth in 2010.

"Industry demand moved higher, compared with results in the January 2010 report, pointing to stronger growth in 2010," said William Strauss, a senior economist at the Federal Reserve Bank of Chicago. "After more than two years of job losses, job creation increased in the first quarter of 2010, suggesting a better outlook for hiring over the next six months."

The NABE forecast, shows fewer jobs are being shed, more are being created and more companies are making money.

The findings echoed results issued by Conference Board last week for its index of leading economic indicators. The figure jumped 1.4 percent in March, suggesting economic growth is likely to continue for the next three to six months. The growth was at its fastest pace in 10 months. Government data also showed that employers in March added 162,000 jobs, the most in three years.

The survey of 68 NABE members from private sector and industry trade associations takes into account first-quarter results and near-term outlook.

With industry demand on the rise for the third straight quarter, 37 percent of respondents plan to increase employment in the next six months, up from 29 percent in January. The net employment outlook index -- job additions minus all cuts over the next six months -- soared to 21 from 6 in the survey, with fewer respondents saying they planned to reduce staff through either attrition or layoffs. However, the bulk of employers -- 46 percent, down from 48 percent -- still plan no change to staffing levels.

By sector, the financial, insurance and real estate industries along with the service industry have had the most positive employment trends and continue to going forward. The jobs outlook in manufacturing has improved, respondents said, but is negative in the transportation, utilities, information and communications industries.

Wages and salaries also are improving. Respondents reporting higher pay more than doubled to 26 percent, while those reporting a decline in wages slipped to 6 percent from 7 percent in January. The net reading for wages and salaries -- planned increases minus planned cuts -- was 20, the highest reading since January 2008.

Higher salaries would bode well for the recovery, because consumer spending accounts for as much as 70 percent of U.S. economic activity.

Reports: Signals of better times ahead

At a glance

THE ECONOMY: Economists are more optimistic about prospects for growth this year as industries increasingly report better profits and add new jobs, according to the latest survey from The National Association for Business Economics.

THE IMPROVEMENT: 37 percent of respondents plan to boost hiring in the next six months, up from 29 percent in January. Fewer respondents plan job cuts. The bulk plan no payroll changes.

THE CHALLENGES: Businesses are contending with rising wages and materials costs, as well as still-tight credit.