US economy shows signs of life
( 2001-12-29 10:36) (7)
Led by a dramatic rise in consumer confidence, a batch of economic data released on Friday suggested the worst of the recession, which started in March, may be over.
The reports raised hopes of better days ahead for the ailing US economy as home sales climbed, orders for many big-ticket items posted gains and consumer confidence rebounded.
"The slew of data all paint a complimentary picture of at least some rebounding," said Stuart Hoffman, chief economist for PNC Financial Services Group. "The data don't say the recession ended in November and December, but there are some precursors for an end to the recession in the winter."
* New-homes sales soared by 6.4% in November, the largest increase in almost a year, helped out by mild weather and low mortgage rates, according to the Commerce Department.
* Sales of previously owned homes rose by 0.6% in November to a rate of 5.21 million, setting the stage for a possible record year, the National Association of Realtors said in another report.
* Although a big drop in demand for military planes pushed down orders for costly manufactured goods last month by 4.8%, many other big-ticket items posted gains, another Commerce Department report showed.
* But in the most encouraging economic news of the day, consumer confidence rose sharply in December following three months of dramatic decline, as the erosion of the economy and job market appeared to begin leveling off.
The New York-based Conference Board said its consumer confidence index rose to 93.7 this month from a revised 84.9 in November. Analysts were expecting a reading of 83.
The index, based on a monthly survey of some 5,000 US households, is closely watched because consumer confidence drives consumer spending, which accounts for about two-thirds of the nation's economic activity.
Analysts were encouraged by the latest economic reports.
''The deterioration in current economic conditions appears to be reaching a plateau, led by a stabilizing employment scenario,'' said Lynn Franco, director of the Conference Board's research center.
Virtually all of the weakness in orders for durable goods - items expected to last at least three years - in November came from a 57.9% drop in new orders for airplanes, mostly stemming from slackened demand for defense aircraft and parts, the government said.
That masked gains elsewhere. Excluding the volatile transportation category, which can swing widely from month to month, durable-goods orders rose a solid 1.1%, the first back-to-back increase since November-December 1999.
New orders for automobiles rose a strong 4.5% in November, on top of an 11% increase in October. Free financing for cars and trucks has been a main factor behind stronger sales in the last couple of months.
Orders for computers and electronic equipment grew by 2%, following an 8.9% advance in October.
Electrical equipment and household appliances saw orders increase by 2.6% in November, after a 4.5% gain. Orders for primary metals, including steels, rose 1.4%, following a 2% decline.
The nation's manufacturing sector has been hardest hit by the sour economy, which tipped into recession in March. To cope, factories have sharply cut production and laid off workers.
In the new-home sales report, the 6.4% rise, the biggest increase since December 2000, pushed new-home sales to a seasonally adjusted annual rate of 934,000, the highest level in eight months.
By region, new-home sales rose by 6.1% in the Northeast to a rate of 70,000. In the Midwest they jumped by 13.1% to a rate of 173,000 and in the South, they grew by 7.7% to a rate of 478,000. But in the West, sales fell by 0.9% to a rate of 213,000.
For previously owned homes, sales rose by 3.8% in the West in November to a rate of 1.36 million. Sales held steady at a rate of 1.17 million in the Midwest and 2.05 million in the South. But in the Northeast, sales fell by 3.1% to a rate of 630,000.
Economists say mild weather and low mortgage rates helped both new and existing home sales last month. The average interest rate on a 30-year fixed rate mortgage was 6.7% in November, compared with 7.7% for the same month a year ago.
The Federal Reserve, in an effort to revive the economy, has cut interest rates 11 times this year. The Fed hopes that the reductions - which pushed borrowing costs to their lowest level since November 1965 - will induce consumers to spend and businesses to invest.
Many economists project the Fed's aggressive action will help bring about an economic recovery by the spring.
In another report, new claims for unemployment insurance rose last week by a seasonally adjusted 7,000 to 392,000, the Labor Department reported.
The smaller-than-expected rise may have been affected by an upcoming policy change in California, where residents are to receive an increase in unemployment benefits early next year. That may have prompted some laid-off workers to delay filing new claims, a government analyst said.
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