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Big-ticket orders, home sales good signs for economy

Saturday, July 26, 2003

WASHINGTON -- The economy is showing fresh signs of snapping out of its funk: Orders to factories for big-ticket goods registered the biggest increase since the beginning of the year and new-home sales climbed to the highest level on record.

The latest batch of economic news Friday reinforced hopes that a much anticipated revival will take hold in the second half of this year.

"It really is beginning to look as if the train has finally left the station," said Joel Naroff, president of Naroff Economic Advisors. "The news was very good and adds to the belief the economy is on the mend."

Especially heartening to Naroff and other economists was a Commerce Department report showing orders placed to U.S. factories for "durable" goods -- costly manufactured products expected to last at least three years-- went up by a solid 2.1 percent in June from May.

The increase -- nearly double what economists were forecasting and the biggest since January -- suggested that the battered manufacturing sector is finally turning a corner. The advance came after America's manufacturers saw demand for their products fall by 2.4 percent in April and stay flat in May.

In more welcome news, sales of new, single-family homes rose 4.7 percent in June from the month before to a seasonally adjusted annual rate of 1.16 million units, the best month for sales on record, the department said in a second report. That comes on top of a 10.9 percent jump in new-home sales from April to May.

The National Association of Realtors, in a separate report, said sales of previously owned homes dipped by 0.3 percent in June from the previous month to a seasonally adjusted annual rate of 5.83 million units. Even with the decline, though, June's sales matched the fourth best month on record.

Low mortgage rates have kept the housing market healthy. Rates on 30-year mortgages hit a record monthly low of 5.23 percent in June, down from 5.48 percent in May. Although a recent rise in mortgage rates may slow home sales in coming months, economists said they still expected sales of both previously owned and new homes to set new records this year.

"Some people jump in when they worry that rates will go higher," said Michael Carliner, economist at the National Association of Home Builders.

While the housing market has been a main prop for the economy, manufacturing, hardest hit by the 2001 recession, has been a major drag.

Factories have cut production and workers amid lackluster demand at home and overseas, where countries are struggling with a global economic slump. At the same time, manufacturers have to compete against a flood of imported goods flowing into the United States.

However, the durable goods report along with other economic data on factory activity suggest that the industry may be seeing better days head. That's good news for manufacturers as well as the national economy's efforts to get back to full throttle.

"The sun is breaking through at last," said Jerry Jasinowski, president of the National Association of Manufacturers. Friday's report "adds to the mounting evidence that the manufacturing recovery, which stalled last August, is on the rebound," he said.

The gains reported for June were broad-based, with orders for commercial aircraft, automobiles, machinery, computers, electrical equipment and home appliances all going up. There were a few soft spots: orders for communications equipment and fabricated metal products went down.

In a bid to energize the economy, the Federal Reserve on June 25 cut a key interest rate by quarter-point to 1 percent, a 45-year low. Economists believe the Fed is likely to hold rates steady at its next meeting on Aug. 12.

Fed Chairman Alan Greenspan and private economists are hopeful the economy, which has been poking along, will pick up speed in the second half of this year as near rock-bottom short-term interest rates and President Bush's fresh round of tax cuts take hold.

Policy-makers are banking on the notion that the combination of extra cash from tax cuts and lower borrowing costs will motivate consumers and businesses to spend and invest more, which would boost economic growth.

"An extraordinary nexus of expansionary policies ... is gaining traction toward spurring new business growth, causing companies to take out their checkbooks to gear up for and take advantage of it," said Ken Mayland, president of ClearView Economics.

On the Net

Durable goods and new-home sales reports: www.commerce.gov

Existing-home sales: www.realtor.org


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