Factory Orders Rise Less than Expected

Posted 05 January 2007 @ 09:00 am EET     Print     Reprint     E-Mail     Comments

WASHINGTON (AP) - Economic indicators flashed mixed signals Thursday, with retailers reporting disappointing holiday results, service industries slowing at year's end and factory orders falling.

Analysts said the reports depicted an economy going through a slow period in response to a serious housing slump, but did not show strains that could bring on a recession.

According to the economic data:

Many big retail chains reported sales in December below expectations. The holiday shopping season had started with a bang, then turned to a whimper. Sales were held back by warmer than normal weather that did not entice consumers to buy winter clothing and by the growing prevalence of gift cards, which are not counted as sales until they are redeemed.

Orders to factories for manufactured goods rose by 0.9 percent in November, a smaller than expected gain. Demand fell for home appliances and furniture, two industries connected to the slumping housing market, and orders dropped for new cars.

The service sector, where most people in the U.S. work, grew at a slower rate in December than in November. The Institute for Supply Management said its index of business activity in service industries dipped to 57.1 last month, down from 58.9 in November.

Despite that reading, analysts said it was at a solid level that indicated these industries, which account for 80 percent of the economy, have withstood the sharp drop in housing activity.

"The services sector is still in pretty decent shape," said Joel Naroff, chief economist at Naroff Economic Advisors. "The slowdown has not reached deeply into industries outside of manufacturing."

On Wall Street, the Dow Jones industrial average managed to eke out a small gain, rising 6.17 points to close at 12,480.69 after having fallen by about 50 points earlier in the session.

Investors were whipsawed between worries about the lackluster report on retail sales and hopes for lower gasoline prices after crude oil dropped below $56 per barrel.

The 0.9 percent increase in demand for manufactured goods pushed total orders to $394.3 billion. Demand for durable goods items expected to last at least three years rose 1.6 percent. The level was unchanged for nondurable goods such as gasoline, food and paper products.

The strength in orders in November was led by a 43.6 percent surge in demand for military aircraft. Orders for commercial airplanes rose by 0.8 percent and orders for motor vehicles declined by 2.4 percent, extending a sales slump as consumers turn away from the once-hot gas guzzling sport utility vehicles.

Industries tied to the slumping housing market showed weakness. Furniture orders fell by 3.3 percent while demand for household appliances dropped by 7.8 percent.

The economy posted a lackluster growth rate of just 2 percent in the summer as a steep slide in housing construction trimmed 1.2 percentage points from growth. Analysts believe housing subtracted a similar amount from growth in the final three months of this year and will continue to depress activity through the middle of 2007.

In addition to the weakness in housing, auto manufacturers have struggled to reduce a backlog of unsold vehicles.

But analysts say there is a slim chance of a recession as a result of the problems in housing and manufacturing. They believe consumer spending, bolstered by a solid jobs market, will remain strong enough to offset the weak sectors.

In a separate report, the Labor Department said Thursday that the number of people in the U.S. filing new claims for unemployment benefits rose to 329,000 last week. That was the highest level since late November and 10,000 more than the previous week.

The bigger-than-expected jump in jobless claims was seen as a statistical fluke rather than a signal the labor market was suddenly weakening.

The government reports Friday on the unemployment rate for December. Economists believe that figure will remain unchanged at 4.5 percent.