As the weeks of the New Year pass, each one seems to bring more evidence that the economy is turning around. While the non-financial press made much of the news that fourth quarter real GDP was revised higher, the more important news is the ongoing reversal in manufacturing. More than one manufacturing indicator showed signs of expansion after nearly two years of declines. It will take another month of two to confirm the new trend, but the preliminary data bode well for industrial production.

The consumer sector continues to show a good degree of optimism despite the fact that February confidence surveys dipped slightly. Housing activity soared in January and early indications show a reasonably healthy gain in motor vehicle sales for the month of February (more complete data will be available next week.)

Alan Greenspan's remarks on the economy suggested that he is cautiously optimistic, but signs of firming are becoming more abundant. Nevertheless, Fed officials are still concerned about potential weakness and this means that the federal funds rate target may not be raised for a couple of months. This will allow economic activity to firm further.