The Institute for Supply Management's (ISM) latest comprehensive "Report On Business" showed that economic activity in the nation's manufacturing sector improved markedly between November and December. An index reading of less than 50 indicates contraction, and the ISM measure had been below this level during September-November of 2002. But the ISM index surged more than five points to a level of 54.7 in the final month of 2002 (the best reading since June). And the new orders sub-index, which has important "leading indicator" significance, soared more than 13 points.

Output of the nation's factories, mines, and utilities rose by a scant 0.1% between October and November of 2002. On the strength of the gains recorded earlier in the year, however, overall industrial output during November 2002 was at a level 1.8% higher than one year earlier. Manufacturing sector production also increased by 0.1% during November, following declines totaling a cumulative 0.7% over the prior two months. So industrial output continues to recover from its recessionary low point—but at an excruciatingly slow pace.

The Conference Board's Consumer Confidence Index (CCI) ended 2002 on a sour note, falling to a point 15.1% lower than in December of 2001. After declining by a steep 28% between May and October of last year, the CCI rose by an encouraging 6.7% in November—but then gave almost all of that gain back over the course of December. Furthermore, the Conference Board's survey that measures actual buying plans (over the upcoming six months) of American households showed some deterioration during December, as well.

So all is not doom and gloom as we begin the new year. In addition to the encouraging news from the latest ISM survey, it's significant that the Conference Board's summary of leading economic indicators (LEI) rose by a sharp 0.7% between October and November of last year, the largest monthly increase since the final month of 2001. Still, only half of the ten indicators that make up the LEI rose over the month. The positive moves were primarily of the soft variety while consumer and capital goods orders and building permits were mildly negative. There are still challenges ahead.