Editor's note: Mutual of America Capital Management Corporation presents the following review of economic trends prevailing in the first quarter of 2002. Comments reflect conditions as of March 15, 2002.

Indications late in the first quarter suggest that the recession may be over. The Institute for Supply Management (ISM) reported that the manufacturing sector is growing for the first time since July 2000. While consumer spending has kept the economy from being savaged over the last two years, business spending did not keep pace. Companies had cut back on placing new orders, choosing instead to work their way through existing inventories, unsure of the recession's depth. But the ISM's February report of manufacturing activity showed an accelerating trend in new orders and production on a scale that corresponds to annual economic growth in excess of four percent. New orders rose to their highest level since 1994, with 14 of 20 industries reporting growth in February. Backlogs of orders also grew for the first time in almost two years.

Tempering the good news is that The Conference Board's Consumer Confidence Index, which had risen in each of the previous two months, suffered a relapse. Although household spending rose in January, a question that must be asked is whether consumers (who have been spending all along) have enough pent-up demand to provide the obligatory boost to sustain a recovery. Furthermore, servicing consumer debt now accounts for 14 percent of John Q. Public's disposable income, which is a 15-year high.

The Conference Board also reported positive contributions in January from six of the 10 indicators that make up its leading index. This barometer of economic health has now increased for four consecutive months.

The good news is that for every step the market takes forward, it doesn't take two steps back. The bad news is that for every backward step taken, only one step forward follows. Market rallies have been derailed by mixed signals from economic indicators, the Argentine currency crisis, the lingering effects of last fall's terrorist attacks, and the burgeoning accounting scandal, typified most starkly by Enron. The positive economic news referred to in the first paragraph led to a March rally that sent the Dow Jones Industrial Average over the 10,000 mark. While the Dow is clearly in the black for 2002, its brethren indices are either slightly ahead or slightly behind.

In order for any rally to sustain itself, much has to happen. The economic recovery must stay on track; corporate profits must return; confidence in corporate balance sheets must be restored, as the market is super sensitive to any accounting issues, either real or hinted at; and the Federal Reserve has to maintain its balance on the tightrope it has been walking in regard to interest rates. Of course, any terrorist action could negate an upward trend. Price-earnings ratios remain extremely high by historical standards and may presage weakness that is not yet in full flower.

Positive performance through the quarter was the hallmark primarily of consumer goods companies, both cyclical and noncyclical. The laggards were the technology and telecommunications sectors. Large overcapacity in telecom will likely negatively impact both the telecom and technology sectors for much of the year.

Everywhere you look, fires are popping up. Some just go on smoldering, while others seem perilously combustible. Our neighbors to the south in Argentina seem to have finally settled on a government that will seek a way out of its economic morass. Their peso is no longer pegged to the U.S. dollar and they have the world's best wishes. They will need every last prayer.

Japan seems nowhere nearer to extricating itself from the quicksand in which it has been sinking for several years now, although the Nikkei is up marginally for the year. Most other international indices are on a downward trend, including Ireland's vaunted Celtic tiger, stung by scandals at two prominent companies. The euro became the official currency throughout most of Europe on January 1, an event that has not had any dramatic consequences.

The above article is for general information only and is not intended to provide specific advice or recommendations for any individual. Consult your attorney, accountant, or financial or tax advisor with regard to your individual situation.

Mutual of America Life Insurance Company is a Registered Broker-Dealer.