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Economy's Good News

SOMEWHERE below the attention threshold of Haiti and a senator's diaries, the United States economy is showing more signs of strength.

Some signs bear the caveats that come with one-month or three-month data. Other signs suggest longer-term trends that, while propping up the jobless rate, hold the promise of a more robust economy in the future.

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The encouraging news comes in several areas. Consumers appear to be reopening their wallets. Retail sales in October showed the biggest one-month gain in six months. Existing-home sales in the third quarter posted the largest quarterly increase since the National Association of Realtors began tracking the figures in 1981. This follows on the heels of a Commerce Department report showing monthly new-home sales up nearly 21 percent in September. These gains were driven largely by pent-up demand and low interest rates.

On the jobs front, the unemployment rate for October rose 0.1 percent to 6.8 percent; but economists attribute the increase to a growing labor force. People once discouraged from seeking jobs now sense that jobs may be available again and are searching for work. Although slight compared with the economy's overall gain of 177,000 jobs in October, the gain of 12,000 factory workers added to payrolls represents the first increase in months in that category.

And inflation remains docile at the producer and consumer levels.

Underlying much of this activity is an increase in productivity brought on by the wrenching restructuring that began in the late 1980s. That restructuring, in part reflected in the low job gains for factory workers and in low inflation rates, continues. In typical recoveries, economic growth comes in relatively equal measure from productivity gains and the number of hours worked; this time the growth is largely attributed to productivity gains.

These gains must be sustained to help ensure the competitiveness of US goods at home and overseas.

For the Federal Reserve Board, this means holding interest rates down. Low interest rates make it easier for companies to buy or upgrade productivity-enhancing equipment, while helping to sustain the growth in auto, housing, and durable-goods sales.

For the president and Congress, the challenge is broader: to ensure an adequate, cost-effective social safety net as restructuring plays itself out. Such a net stretches beyond unemployment benefits. It also includes job retraining and health-care reform.

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