The U.S. economy is performing very well, as evidenced by the 7.2% third-quarter growth in gross domestic product. Strength is evident in the major consumer and industrial markets, and recent reports show gains in several retail categories, housing starts, industrial output, and factory usage.

• The Institute for Supply Management reported that its index of manufacturing business conditions rose to a higher-than-expected 57.0 in October from 53.7 in September. Readings above 50 point to expansion in manufacturing activity, while those below indicate contractions. It was the fourth straight month during which the index was above 50. At 57, the ISM index as at its highest level since January 2000.
• The Institute for Supply Management also reported that its index of non-manufacturing business conditions (the proxy for the service-side of the economy) reported strengthening demand and activity. The index increased to 64.7 in October from the 63.3 in September, the seventh consecutive month above the 50-expansion-contraction mark.

There is also a revival in the long ailing tech sector, which has translated into higher earnings for a number of technology companies, including most recently Cisco Systems, Inc. They reported higher sales and profits for its fiscal first quarter, the strongest indication yet that corporate spending on networking equipment is rebounding after two years of declines.

The employment situation continues to appear in the headlines. Weekly jobless claims continue to hold near the 400,000 level, where they have stayed for much of this year. The actual growth in nonfarm payrolls is still negligible. The rest of the economic picture is sufficiently bright to suggest that the U.S. gross domestic product will increase by a healthy, but not booming 3.5%-4.0% in the current quarter. The rate of job creation is always slow in the early stages of recovery. As business improves, the number of jobless claims should begin to decline early next year.

The corporate earnings picture also is brightening. The earnings uptrend, in fact, was rather broad-based in the recently concluded third quarter, with just a few disappointments. This positive earnings trend is expected to continue in the current quarter and into 2004.

The stock market is continuing to perform quite well, with just a few setbacks along the way. The early impetus for the market’s rise in 2003 was provided by our success in achieving a regime change in Iraq. The momentum since then has been provided by better economic and corporate earnings outlook. The bull market appears to have staying power.