Mel Bergstein, chief executive of Chicago-based DiamondCluster International Inc., doesn’t need the government’s leading indicators to tell him where the economy is headed. His own company can tell him that.
“We are looking to hire 100 people,” Bergstein said Thursday. “We are seeing a surge in demand. This would be an indicator that [the economy is] moving forward in a very meaningful way.”
DiamondCluster offers consulting on the use of technology–a double handicap in recent years, as companies cut back spending on new technology and laid off consultants to save money. In March 2001, at the peak of the technology stock bubble, it had 1,478 employees. On Thursday it had 661.
Bergstein said that, in some ways, his firm is a leading indicator because companies hire it when they are planning to expand, not cut back, and a raft of economic reports released Thursday support his perception that things are improving.
The star of the day was a surprising jump in the second-quarter gross domestic product, to a rate of 2.4 percent, which also showed business spending at its highest level since 2000, but the supporting cast offered evidence that indicates the stagnant economy is starting to accelerate.
Manufacturing in the Chicago area increased in July to its highest level since January. New claims for unemployment insurance fell last week for the third week in a row. Help-wanted ads in newspapers were up in June, if only modestly.
The performance didn’t draw rave reviews, but it was better than economists expected.
“The economy is not getting worse,” said Ken Goldstein, an economist with the Conference Board. “It could get better soon and is likely to continue to get better.”
Perhaps the most encouraging sign was in manufacturing, one of the hardest-hit sectors of the economy. The nation has lost more than one million manufacturing jobs in the last two years.
The National Association of Purchasing Management-Chicago index rose to 55.9 in July from 52.5 in June. The increase surpassed economists’ expectations.
When the index is above 50, it indicates expansion, and some manufacturers are seeing just that.
Quam Nichols Co., which manufactures public address systems and other commercial audio products on Chicago’s South Side, has seen new orders rise noticeably over the past two months.
William Little, president of the company, said the contractors he sells to had predicted business would improve. “I thought their optimism was unwarranted,” Little said. “Now it appears to be true.”
Little said the pickup in orders for office buildings, schools and warehouses indicates that after a long hiatus businesses are beginning to spend money again.
“We are very much at the mercy of corporate capital spending,” Little said. “We have seen a couple of soft years.”
Some manufacturing companies that haven’t benefited yet still see better times ahead–and soon.
“The bleeding has kind of stopped,” said Robert Swanson, vice president of Gatto Industrial Platers Inc. on Chicago’s West Side. “We anticipate our business will start growing around October, November or December.”
The company plates metal parts with zinc for the automotive, telecommunications, agricultural and builders supply and hardware industries. Typically, the plating, which is necessary to prevent corrosion, is the final step in the manufacturing process.
Swanson said he gets his market intelligence from his clients, and he likes what he hears. “They are starting to see more activity from their customers,” he said.
Not every manufacturer is going to benefit from an upturn.
Airlines still in a slump
“There are some that are not going to jump quickly,” said Anthony Chan, chief economist at Banc One Investment Advisors.
Chan said, for example, that sales of new passenger aircraft will remain depressed because the airline industry remains too distressed to buy new planes. But he said long-depressed segments of the economy–mining, for example–should see at least some benefit.
Corporate caution about hiring, combined with layoffs in hard-hit industries, pushed the unemployment rate to 6.4 percent in June. That is not high by historical standards, but it is the highest level in nine years.
Although it was tentative, there was some good news about jobs on Thursday. Initial claims for unemployment benefits last week fell by 3,000, to 388,000, the Labor Department said. That was the lowest level in five weeks, and many economists had expected the number to go up, not down.
Weekly figures are volatile, however, and economists prefer to use longer time frames before determining a trend.
Hiring still sluggish
Nor is an immediate surge in hiring guaranteed. The Conference Board, for example, doesn’t see unemployment declining until Thanksgiving at the earliest, and very likely not until early next year.
“The economic news today was really manna from heaven for the bulls,” said Al Goldstein, chief financial strategist for A.G. Edwards, an investment house in St. Louis.
Goldstein said he expects stocks to head higher this year as corporations report better profits.
