Mixed signals show economy recovering, but with bumps

WASHINGTON -- The economy's bumpy road to recovery was vividly seen Thursday in a trio of reports: Demand to factories for big-ticket goods posted the best showing in six months, but new-home sales plummeted and unemployment claims hit a two-month high.

The latest batch of economic news provided fresh evidence of what economists feel is the frustrating nature of the economic recovery: It is advancing, but in fits and starts.

Orders to U.S. factories for durable goods -- items expected to last at least three years -- jumped by 3.3 percent in January, the first increase since October, the Commerce Department reported.

The manufacturing sector, hardest hit by the 2001 recession, has been the biggest drag on the economy's struggle to get back to full throttle. But Thursday's manufacturing report, along with other recent data on the industry, offered hope that the sector may be on track for a revival.

"There are challenges to overcome ... but this gets factories off to a good 2003 start," said Ken Mayland, president of ClearView Economics.

That helped to give stocks a lift. The Dow Jones industrial average closed up 78.01 points at 7,884.99.

A second report from the department, however, showing sales of new, single family homes plunged by 15.1 percent in January -- the biggest decline in nine years -- raised some new questions about consumers' willingness to make big financial commitments amid worries about a war with Iraq, economists said.

The decline -- which came after new-home sales hit a record monthly high in December -- pushed sales down to a seasonally adjusted annual rate of 914,000, a still respectable level.

Still, "You can't dismiss sales being off by 15 percent. It could be a signal that people are hunkering down a tad," said David Seiders, chief economist at the National Association of Home Builders. "I think we are seeing more caution."

Lean workforces

In a third report, the Labor Department said new claims for unemployment benefits rose by a seasonally adjusted 11,000 last week to 417,000, a two-month high, suggesting that businesses are inclined to keep workforces lean, given the uneven economic recovery.

The economy has been coping with uneven growth as a quarter of strength has been followed by three months of weakness. And businesses have been struggling to try and gauge demand for their goods during these muddled economic times.

The biggest factor holding back the economy's recovery is the reluctance of businesses to make big commitments in hiring and in capital spending, due in part to uneasiness about war and generally to an uncertain business environment.

In the manufacturing report, gains were broadbased. Orders for cars, computers, communications equipment, machinery and primary metals, including steel, all registered solid increases.

In the new-home sales report, sales fell sharply in all parts of the country in January, except for the Northeast, where they rose.

In the Midwest, sales plummeted by 42.2 percent in January from the previous month to a rate of 163,000. In the South, sales fell by 12.9 percent to a rate of 406,000, and in the West, they dipped by 1.4 percent to a pace of 279,000. But in the Northeast, sales soared by 43.5 percent to a rate of 66,000.

"There is nothing to suggest that housing has taken a major turn for the worse," said Lynn Reaser, chief economist at Banc of America Capital Management.

Even with the weak new-home sales report, the housing market remains in good shape, she said.

Sales of previously owned homes -- the biggest chunk of the housing market -- hit a record monthly high in January, the National Association of Realtors reported earlier this week.

Super-low interest rates should continue to keep the housing market stable. Freddie Mac, the mortgage giant, reported Thursday that rates on 30-year, fixed-rate mortgages hit a new low this week, dipping to 5.79 percent from 5.84 percent last week.