Durable Goods Orders and Consumer Confidence Rise, Suggesting Recovery

NEW YORK – Orders for expensive manufactured goods rose a more-than-expected 2 percent in December, suggesting better days may be ahead for the nation's battered manufacturing sector, while consumer confidence improved again, lifted by increased optimism about jobs and the economy.

The Commerce Department said orders for durable goods — items intended to last three years or more — rose 2.0 percent to $176.4 billion in December, after a revised 6.0 percent decline in November. November's drop was initially reported as 4.8 percent.

The gain in orders for the month was stronger than the 1.3 percent increase forecast by economists in a Reuters poll.

Meanwhile, the New York-based Conference Board said Tuesday that its Consumer Confidence Index rose to 97.3 this month from a a revised 94.6 in December. That was much better than the 96 reading analysts were expecting.

The industry group's index, based on a monthly survey of some 5,000 U.S. households, is closely watched because consumer confidence drives consumer spending, which accounts for about two-thirds of the nation's economic activity.

"While the economy has not turned around yet, the worst may well be over," said Lynn Franco, director of the Conference Board's Consumer Research Center.

Manufacturers have borne the brunt of the ailing national economy, which slid into a recession in March. To cope, they have sharply cut production, trimmed hours and laid off workers. Last year, factories shed 1.3 million jobs, or about 7 percent of their work force.

As evidence of just how much damage has been inflicted on the manufacturing sector, the department said that for all of 2001, durable-goods orders fell by a record 13.2 percent, the worst showing since the government began keeping records using the current classification system in 1992. In 2000, orders rose by 6.7 percent.

Tuesday's reports and other recent data suggest the recession in the manufacturing sector may be bottoming out, economists say.

A report released by the Institute for Supply Management earlier this month showed that a rise in new orders to factories helped push a key gauge of manufacturing activity higher in December, a sign the sector is beginning to emerge from a 17-month slump.

Before manufacturing can fully recover, however, businesses will have to crank up investment again and foreign companies and consumers must increase their spending on American-made goods, which would boost U.S. exports, economists say.

To revive the economy, the Federal Reserve cut interest rates 11 times last year, which had the effect of reducing the prime lending rate, a benchmark for many consumer and business loans, to its lowest level since November 1965.

Fed Chairman Alan Greenspan told Congress last week that he see signs of a recovery, prompting many analysts to predict that Fed policy-makers will leave interest rates unchanged after a two-day meeting that ends Wednesday.

Tuesday's manufacturing report showed that orders for transportation equipment rose by 3.5 percent in December, after a huge 20 percent drop the month before. Orders for cars and airplanes posted gains.

Excluding the volatile transportation category, durable-goods orders increased by a solid 1.4 percent in December, the third consecutive monthly gain.

Computers and electronic products saw orders rise by 3.5 percent in December, on top of a 1.1 percent advance. All the strength came from orders for semiconductors, which rose a strong 13.3 percent.

Orders for machinery went up by 1.7 percent last month, following a 1.8 percent gain. Fabricated metal products rose 1.4 percent, after falling 1.1 percent in November.

But orders for electrical equipment and household appliances dipped by 0.2 percent in December, after rising by a solid 2 percent the month before.

Primary metals, the category that includes steel, slipped by 0.5 percent, on top of a 0.4 percent decline.

Shipments, a barometer of current demand, rose by a solid 0.5 percent in December, after falling by 0.4 percent.

On the inventory side, signs continued to be positive. Inventories of durable goods fell for the 11th consecutive month in December, down 0.4 percent to $284.7 billion.

— Reuters and the Associated Press contributed to this report.