After recording a decline in production in 16 of the 18 months between mid-2000 and the end of 2001, the nation's manufacturing sector emphatically turned the corner in the first half of this year. Manufacturing output rose in each of the first five months of 2002. Although industrial output in May was 1.6% below its year-earlier level, this was an improvement over the nearly 7% annualized rate of decline in late 2001. With many companies beginning to restock depleted inventories, look for moderate monthly production gains throughout this summer and fall.

The Institute for Supply Management's (ISM) latest "Report On Business" indicates that economic activity in the nation's manufacturing sector grew for the fourth consecutive month in May. Of the 20 manufacturing sectors surveyed, 16 reported an improvement in the level of new orders they received between April and May. The production component of the Purchasing Managers Index (PMI) rose by a slim 0.5 percentage point during that period, while the new orders sub-index, which has important "leading indicator" significance, was much stronger, rising 4.1 points in May.

With business investment showing only faint signs of accelerating, continued growth in the U.S. economy remains dependent on sustained increases in consumer spending. But consumers may be adopting a more cautious attitude about growth in household income and spending. After rising in four of the previous six months, the Conference Board's consumer confidence index fell by 3.5% between May and June. That doesn't suggest an imminent retrenchment by consumers, but the business sector will have to pick up soon to keep the economic recovery going.

The Conference Board's latest summary of leading economic indicators (LEI) suggests that the recovery will be slow to gather momentum, and that we'll see slow but steady improvement in the U.S. economy for the balance of 2002. Five of the ten indicators that make up the LEI rose in May, led by building permits, money supply growth, and a decline in new claims for unemployment insurance. The LEI's 0.4% gain in May means a "double-dip" recession is highly unlikely - but so is double-digit growth in any sector of the economy.