Hopeful Signs Amid Gloom on Economy
Thu Sep 26, 1:08 PM ET
By Tim Ahmann
WASHINGTON (Reuters) - A flurry of economic reports on Thursday helped temper fears the U.S. economy was fast losing momentum, but failed to fully dispel a cloud of gloom stemming from an ailing stock market and concerns about war.
Government reports showed a drop in claims for jobless benefits, record new home sales and signs a long-lasting slump in business spending may be nearing an end -- better-than-expected news that pushed stock prices higher.
"The economy's not tipping back into recession, that's clear," said Gerald Cohen, a senior economist at Merrill Lynch in New York. "The question is how strong or weak is growth."
The Dow Jones industrial average, which had its biggest one-day gain in six weeks on Wednesday, was up 103 points to 7945 shortly after midday. And, in a sign investors were scaling back bets that economic weakness would push the Federal Reserve ( news - web sites) to lower interest rates, prices for U.S. Treasuries fell.
Orders for durable goods -- costly manufactured items intended to last at least three years -- slipped 0.6 percent in August, the Commerce Department ( news - web sites) said, but economists on Wall Street had been expecting a steep 2.6 percent drop.
While orders fell, they would have gained 0.6 percent had it not been for a drop in defense orders.
In addition, non-defense capital goods orders -- a gauge of business investment spending -- rose 5.9 percent and 0.6 percent excluding aircraft orders, building on increases in July.
"We're seeing signs even in this report, as modest as the number is, that capital spending, while it isn't going to be roaring back, at least we're moving up the hill, we're not sliding back," said Tim O'Neill, chief economist at Bank of Montreal/Harris Bank.
A falloff in capital spending led the economy into recession last year, and officials at the Federal Reserve have said a pickup is vital to ensuring a solid, sustainable recovery.
"We continue to believe that capital spending (on equipment and software) is going to grow at around a 6 percent pace in the third quarter," Cohen said. That would mark its fastest growth rate in over two years.
JOBS AND HOUSES
A separate report from the Labor Department ( news - web sites) showed initial claims for jobless benefits -- a rough guide to the pace of layoffs -- fell 24,000 to 406,000 last week, well below the 421,000 figure Wall Street was bracing for.
The drop pulled the four-week moving average of claims, which smooths weekly volatility, down 1,OOO to 419,000.
While claims remained stubbornly above the 400,000 level for a fifth straight week, a level that economists say signals a weak job market, the movement was at least in the right direction.
"The labor market is not deteriorating to an extent that will hurt consumer spending, but initial claims are still at significantly high levels," said John Lonski, chief economist at Moody's Investors Service.
The report suggested the pace of hiring remains poor with the number of people who continue to draw unemployment benefits rising for the third straight week to 3.68 million in the Sept. 14 week, the latest week for which figures are available.
Contributing to a cautious sense of optimism on the economic outlook, a third report showed that sales of new U.S. homes rose to a record level last month, as low interest rates continued to fuel home buying.
The Commerce Department said sales of new single-family houses climbed 1.9 percent to an annual rate of 996,000 units last month from a downwardly revised 977,000 in July. Economists expected a pace of only 981,000.
Mortgage rates falling to levels last seen in the 1960s have kept the housing market thriving, even as much of the rest of the economy has struggled.
"Clearly low mortgage rates are providing incentive that outweighs other concerns regarding business, jobs, and income prospects," said Jade Zelnik, chief economist for Greenwich Capital Markets.
Mortgage rates have continued to trend down since August, with the average rate on a 30-year loan reaching 5.99 percent this week from 6.05 percent a week earlier, according to mortgage market giant Freddie Mac.
The drop in mortgage rates reflects the uncertain nature of the U.S. economic outlook, and persistent concerns over the potential for further weakness against a backdrop of an ailing stock market and a possible U.S. military strike on Iraq.
"This is one of the most difficult periods of forecasting we have confronted," Federal Reserve Chairman Alan Greenspan ( news - web sites) told a group of British economists in London on Wednesday.
On Tuesday, Fed policymakers held the benchmark federal funds rate steady at a four-decade low of 1.75 percent despite lingering concerns over the economy's path.
story.news.yahoo.com |
