Robust consumer spending in July and hiring by Chicago-area businesses in August - the first in three years - suggest the economy is poised for its best quarter since the height of the 1990s' boom.
Chicago-area manufacturers and businesses last Friday reported the fastest expansion in 15 months, contrary to forecasts of a slight pull-back, and added to their payrolls for the first time since March 2000.
"All the data's saying the same thing: this quarter is going to be a cracker," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets. He expects gross domestic product to grow six per cent to seven per cent this quarter.
That suggests factories nationwide may be on the verge of faster growth and should start hiring in the sector, which has shed 2.6 million jobs since mid-2000 during the recession and sluggish recovery.
The labour market remains the one weak spot, and ongoing layoffs have taken a toll on consumer confidence. The University of Michigan's sentiment index retreated slightly in August to a final reading of 89.3 from 90.9.
But if the National Association of Purchasing Management-Chicago report is a harbinger of things to come on the hiring front, sentiment will soon start to rise.
Even in the face of job anxiety, households eagerly shelled out cash on everything from homes and cars to clothes. Helped by the $350 billion tax cut, personal spending jumped 0.8 per cent in July, the Commerce Department said, while spending in June was revised up to a 0.6 per cent gain from 0.3 per cent.
Some economists believe personal consumption could turn in its best performance in 15 years during the July to September quarter.
The panoply of positive news in recent weeks now has many economists hiking their growth forecasts for the third quarter to as high as five per cent and six per cent, which means the economy could put in its best performance since it expanded at an unusually brisk 7.1 percent in late 1999.
Friday's data had little lasting impact on stocks and bonds in thin trading ahead of the long Labour Day holiday weekend.
The Chicago index jumped to 58.9 in August from 55.9 in July, holding well above 50, which indicates expansion. Signs are for that swift pace of growth to continue. New orders for goods keep piling in, even though the index slipped to 60.5 from 61.7, while production jumped to 61.6 from 58.4. Even backlogs of orders rose.
"This report makes it very clear that the manufacturing recovery is gathering pace," said Ian Shepherdson, chief US economist at High Frequency Economics.
Disposable personal income, which strips out the impact from taxes and other bills, soared 1.5 per cent as a result of the tax cuts. But without the refunds and reduced deductions, income would have increased a more meager 0.2 per cent.
When adjusted for inflation, which matters most in GDP estimates, personal consumption climbed a real 0.6 per cent. The higher revisions to prior months put spending on an even stronger track than first thought, and recent numbers show spending is speeding up.
The Fed's favoured inflation gauge climbed to a 1.4 per cent annual rate in July from a 1.2 per cent pace a month earlier, showing that deflation is now less of a threat.
At a gathering of central bankers, Federal Reserve Chairman Alan Greenspan rejected suggestions the Fed should adopt explicit policy rules like inflation targets, and instead said it should maintain its flexibility.
Even with yet more good economic news pouring in, Greenspan avoided discussing the data.
Ford said its US new car and truck sales could hit an annual rate of 18.2 million to 18.7 million, which would be the strongest pace this year. That remarkable performance implies another hefty gain in retail sales for August and a spectacular third quarter for consumption.
"Consumer spending (growth) should reach an annualised pace of around seven per cent," noted David Sloan an economist at 4Cast - the strongest since 1988.
Revisions earlier last week pushed up second-quarter growth to 3.1 per cent from 2.4 per cent, signalling the economy is moving beyond recovery to full-fledged expansion. The prior two quarters came in at a tepid 1.4 per cent.