Durable Goods Orders Fall; Jobless Claims Tick Higher

Updated from 10:26 a.m. EST

A platter of mostly favorable economic reports lifted stocks Friday morning as Wall Street grew more confident about an economic rebound, but by midday, the major averages were having trouble holding their gains.

The various reports, which showed an improving manufacturing sector, robust consumer confidence and ongoing strength in the housing sector, suggest the Federal Reserve's easing campaign may finally be over.

"I believe the economy is mending," said Asha Bangalore, an economist at Northern Trust. "The bottom line is that given these upbeat numbers, I think the Fed is unlikely to do anything in its January meeting, barring any unexpected increase in unemployment."

Elsewhere, the Chicago purchasing managers' index rose to 41.4 in December from 41.1 in November. A number below 50 signals contraction, while a reading above that mark points to expansion.

In the equity markets, the chip, software and Internet sectors led Friday morning's gains. U.S. Treasuries fell, raising yields, as bond investors bet an economic recovery would discourage the Fed from continuing its aggressive interest rate cuts.

The Dow Jones Industrial Average was hovering around the flatline at midday after being stronger during the morning. The Nasdaq and the S&P 500 were slightly higher, but they were off their best levels of the session.

Industrial Might

"The durable goods report was the most important one," Bangalore said. "I don't think it was weak because there were many signs of improvement in the factory sector."

The Commerce Department said orders for durable goods, which are items meant to last at least three years, fell 4.8% to $175.6 billion. According to Dow Jones, economists were looking for a decline of 5%. A Reuters poll had projected a 4.6% drop.

The manufacturing sector was the first segment of the economy to be hit with a recession. The latest report showed that orders for manufactured goods fell in November, giving up part of the large defense-related gains in October, but demand for goods outside of the transportation and defense sectors rose for the second straight month.

The November numbers follow a revised 12.5% jump in October that was helped by defense orders for new aircraft. Aircraft orders fell 57.9% in November after soaring more than 200% in October. Excluding transportation, new orders in November increased 1.1%.

Consume This

So far, the U.S. recession has been tempered by the relative strength of the consumer sector, the activity of which accounts for two-thirds of the overall gross domestic product . Consumption was hit in the wake of the Sept. 11 terrorist attacks on New York and Washington. Rising unemployment has also been imperiling consumption levels. But confidence, and spending, have been on the mend.

Consumer confidence in December rose for the first time in six months, according to the Conference Board's latest survey. The index rose to 93.7 in December, compared with an upwardly revised November reading of 84.9.

The present situation index, which measures Americans' views of the economy right now, inched up to 96.9 in December from 96.2 in November. The expectations index rose to 91.5 from 77.3 in November, as people projected better times in the coming six months.

"The deterioration in economic conditions appears to be reaching a plateau, let by a stabilizing employment scenario,'' said Lynn Franco, director of the Conference Board's Consumer Research Center, in a prepared statement.

"Consumers' short-term optimism is no longer at recession levels, and the upward trend signals that the economy may be close to bottoming out and that a rebound by mid-2002 is likely,'' she said.

An alternate index has also been showing improving consumer confidence. Last Friday, the University of Michigan's Consumer Sentiment Index rose to 88.8 in December from 83.9 in November. That beat consensus forecasts for a reading of 85.7 and blew past the index's level of 81.8 in September.

Claimants

On the employment front, the number of weekly jobless claims filed in the U.S. rose during the week ended Dec. 22, reversing three straight weeks of falling claims.

The number of Americans seeking first-time unemployment benefits rose 7,000 to 392,000, the Labor Department said, up from a revised 385,000 during the prior week. Economists had been looking for 401,000 claims for the latest week.

"I think it continues to send a message that conditions are improving in the labor market," Bangalore said, pointing out that the four-week moving average of jobless claims was a positive sign of a stabilizing jobs market. The moving average, which is considered a good gauge because it smoothes out weekly variations, fell to 413,250 in the week ended Dec. 22 from 438,500 in the Dec. 15 week. It was the third straight week in which this claims measure posted a decline.

Bricks & Mortar

Separately, the residential real-estate sector remained robust in November. The government's latest data showed that homebuyers bought new houses at the fastest pace since March.

According to the Commerce Department, new homes sales rose at a stronger-than-expected rate of 6.4% in November to a seasonally adjusted 934,000 annual rate. The gain was the largest monthly percentage jump since December 2000. In a survey of economists by Reuters, the average forecast called for home sales to rise to about an 888,000 annual rate.

Meanwhile, existing homes sales grew 0.6% in November, the National Association of Realtors said. Previously owned homes, the largest category of home sales, sold at a seasonally adjusted annualized pace of 5.21 million units last month, up from a revised rate of 5.18 million in October.

Sales were higher than expected. Analysts forecast a 5.17 million unit pace in November. At the same time, the inventory of homes available for sale also rose.