Durable goods orders rise by 5.2 percent

NEW YORK - Orders to factories for big-ticket manufactured goods jumped unexpectedly in December, good news amid signs that the U.S. economy may be tipping toward a recession.

Still, analysts said the 5.2 percent growth in orders — while potentially boosting industrial output in coming months — likely came from overseas demand and that domestic growth faced continuing threats from tight credit and mortgage markets that have forced consumers to retrench.

The Conference Board report Tuesday that consumer confidence fell sharply in January on worries over deteriorating business conditions and a weakening job market gave another sign of consumer angst.

The New York-based business research group said that its Consumer Confidence Index dropped to 87.9 in January from a revised 90.6 in December. That put it back to about where it was in November, when it registered 87.8. The January reading was just a tad below the 88 expected by Wall Street analysts, according to Thomson/IFR.

Meanwhile, a key index that tracks home prices plunged a record 8.4 percent in November.

The drop in the Standard & Poor's/Case-Shiller 10-city composite home price index was the 11th straight monthly decline and the biggest year-to-year drop since a 6.7 percent decrease in October.

While acknowledging that the factory orders report was a positive sign, economists worried that it would be misinterpreted as signaling greater strength than exists.

"So make no mistake: The U.S. economy remains under severe stress," said Bernard Baumohl, managing director of the Economic Outlook Group, in a research note. "When you have more than 70 percent of the economy (consumers) in retrenchment mode and a banking sector shutting down the lending window, the prospects of a recession are still very real."

David Huether, chief economist of the National Association of Manufacturers, also welcomed the orders report as "confirmation for manufacturers that export-led growth is continuing." But he worried that the downturn in housing would hurt the economy.

"This is why immediate action from Capitol Hill on an economic stimulus package is needed to encourage both consumer spending and business investment," Huether said.

The White House and Congress last Thursday announced a joint agreement to work on an economic stimulus program that's expected to include tax rebates for consumers.

That came two days after the Federal Reserve on Jan. 22 cut its short-term interest rate target three-quarters of a percentage point to 3.5 percent to boost the economy.

Fed policy makers began a two-day meeting on Tuesday, and many analysts and investors expect an additional rate cut of at least a quarter of a point.

In an ongoing effort to provide relief to cash-strapped financial institutions, the Fed said Tuesday it had auctioned an additional $30 billion to commercial banks at an interest rate of 3.123 percent.

Through the Fed's four auctions since December, a total of $100 billion in short-term loans has been made available to banks.

The market marked time in advance of the Fed's Wednesday announcement. The Dow Jones industrial average rose 36.83, or 0.3 percent, to 12,420.72 in afternoon trading. The Standard & Poor's 500 index rose 1.88, or 0.1 percent, to 1,355.84, while the Nasdaq composite dropped 8.45, or 0.4 percent, to 2,341.46.

Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement that the consumer confidence survey — which is based on a sample of 5,000 U.S. households — indicated that consumers in January appeared more pessimistic about the economy.

"Looking ahead, consumers are quite downbeat about the short-term future, and a greater proportion expect business conditions and employment to deteriorate further in the months ahead," she said. That could affect spending decisions, she added.

It was unclear how much to read into the data because the survey was taken before the Fed's big rate cut and the announcement of the stimulus program, both aimed at boosting consumer spending.

The strength in durable goods orders — double what analysts had expected — came from a big increase in demand for commercial aircraft. But even excluding the transportation sector, orders posted a solid 2.6 percent gain.

Despite the strong December, it was a lackluster year. Orders for all of 2007 rose just 0.97 percent following much bigger increases of 6.31 percent in 2006 and 9.45 percent in 2005. It was the poorest showing since orders actually fell by 3.17 percent in 2002, a year when the country was still struggling to emerge from the 2001 recession.