Productivity growth is the big reason for forecasters' overwhelming belief that the economy is now in sustained recovery. Nonfarm business productivity grew at an 8.6% annualized rate in first quarter 2002. Added to fourth-quarter 2001 growth, it's the biggest productivity growth surge in nearly twenty years. Manufacturing productivity grew at a 9.7% rate in Q1 2002. Economists say a fast return to corporate profitability could open the U.S. economy to another big boom. Fast productivity growth makes it possible to believe the return to profitability will happen sooner rather than later.

While the economic picture continues to brighten, odds of a Fed interest rate hike this summer may be dropping. Reason: Unemployment, which is a lagging indicator, has continued to edge upward. History suggests the Fed will make no move to tighten money until unemployment has moved decisively past its peak.

Inflation rumblings are getting a bit louder. First, there's been a big jump in price activity for such commodities as steel and plastic resins (see story on page 20). There's also been a trend reversal in the government's index tracking import prices, which, over the past couple of years, has served to keep a lid on domestic pricing patterns. Another danger sign: A wavering dollar. Any sustained decline in the dollar's strength would push up costs for all imports, freeing domestic producers to push prices higher.

Corporate profit margins improved for the first time in nearly two years, according to the latest Industry Survey by the National Association of Business Economists (NABE). "Improved pricing, low cost pressures, and productivity gains produced the first positive growth margin net rising index in seven quarters and the largest swing in the index since 1983," NABE reports.

Attention all forecasters. To enter PURCHASING's 2002 Crystal Ball economic forecasting competition, go to www.purchasing.com. Deadline for entering is midnight June 30, 2002. Prizes: $500 for first place, $150 for second, $100 for third. Previous winners can enter, but can claim no prize money. If there's a tie in the scoring, earlier time stamp wins. PURCHASING's Web location also features links to data sources necessary for formulating forecasts. Tip: Preliminary first quarter GDP data was released on May 24. Final revisions to Q1 data will be out June 27.