U.S. Factories Grow, Raise Hopes For 'Goldilocks Economy'

By Agence France-Presse American manufacturing grew at a solid but slower pace in June, a survey showed July 1, raising hope for a "Goldilocks economy" that would enable interest rates to creep up slowly. The Tempe, Ariz.-based Institute for Supply Management (ISM) purchasing managers' index, based on a survey of supply executives, fell 1.7 point from May to 61.1 in June. Any figure above 50 points indicates expansion. "The manufacturing sector grew at a slightly slower but still aggressive rate in June," said Norbert Ore, chairman of ISM's Manufacturing Business Survey Committee and group director of strategic sourcing and procurement at Georgia-Pacific Corp. "June represents a strong finish to the first half of the year, and the current picture is very encouraging for the third quarter as new orders and production are still growing significantly," he said. Moderate growth -- not to hot, and not too cold -- sometimes described as the Goldilocks economy, is the fairy tale for financial markets who fear overheating would force the Federal Reserve to raise interest rates sharply. "This report makes it clear that manufacturing is not going away anytime soon. It also gives some credence to the view that growth is now returning to more sustainable levels," said Joel Naroff, president of Naroff Economic Advisors. Federal Reserve policymakers June 30 raised the target for the federal funds rate, which commercial banks charge each other overnight, to 1.25% from a 1958 low of 1%. Economists believe rates will return to a neutral level -- about 4% at the current inflation rate -- by the end of 2005. Copyright Agence France-Presse, 2004