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Analysts See Signs of Growing Health in Economic Indicators

February 27, 2004|From Reuters

Orders for high-priced U.S. factory goods and sales of new houses fell in January and initial unemployment claims inched up last week, but details in reports Thursday indicated an economy on a solid footing.

Orders for durable goods -- items meant to last three years or more -- dropped 1.8% last month as demand for autos and planes weakened, the Commerce Department said. Orders increased a solid 2% excluding the volatile transport category, and numbers in the report suggested that business spending would continue to climb.

In a separate report, the department said sales of new single-family homes slipped 1.7% to a seasonally adjusted annual rate of 1.106 million last month, the slowest pace since May.

However, the drop came from a December sales rate that was revised sharply upward. Analysts noted that sales were not far off the record levels hit last year.

The Labor Department said first-time claims for state unemployment benefits rose 6,000 last week to 350,000. The four-week moving average of initial jobless claims, which irons out weekly fluctuations, rose for a fourth straight week to 354,750, its highest level since late December.

The labor market gauge has remained in a range suggesting that the pace of layoffs has eased. Analysts expressed hope that hiring, the one ingredient largely missing from an otherwise strong recovery, would pick up soon.

"The job market does appear, at least on the layoff side, to be stabilizing," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis. "We are probably at the threshold of seeing some pickup on the hiring side."

Though the job market has yet to fully turn around, economists are optimistic that business spending has done so. A collapse in capital spending pulled the economy into recession in 2001, but a rebound became apparent last year.

Economists said the durable-goods report strongly suggested that the upward trend was still in place. Non-defense capital goods orders, excluding aircraft -- seen as an indicator of future business spending -- rose 3.6% last month after a 3.8% gain in December.

Computer orders fell 2.1%, but orders for communications equipment rose 73.3%, their biggest gain since January 1997.

It was a 10.4% plunge in demand for transportation equipment, the biggest decline since September 2002, that offered the only notable weak spot in the report.

Demand for motor vehicles dropped 5.1%. Orders for civilian aircraft plummeted 27.9% and orders for defense aircraft fell 34%. Big-ticket aircraft orders often swing sharply from month to month.

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