Amidst Positive Economic Signs, Rate Cut Is Still Expected

By John S. McClenahen For U.S. manufacturing, some very encouraging economic signs are emerging. For example, fully 40% of member companies responding to an informal survey conducted by the Washington, D.C.-based National Association of Manufacturers reported increasing orders in May and only 24% reported orders falling. In contrast, just a month before 56% of responding companies reported falling orders. And the new orders component of the Institute for Supply Management's manufacturing index moved back into growth territory in May. However, that may not be enough to assure a sustainable recovery. For example, David A. Rosenberg, chief North American economist at Merrill Lynch & Co., New York, still expects the Federal Open Market Committee (FOMC) to lower the influential federal funds rate when the panel meets at month's end. Rosenberg expects FOMC Chairman Alan Greenspan and the other 11 members of the committee to cut the rate to 0.75%, some 50 basis points less than its current four-decade low of 1.25%.

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