2 Reports Add to Economic Confusion

WASHINGTON â€”  Data released Tuesday added to the confusing outlook for the U.S. economy, with one report suggesting a turnaround in manufacturing may be near while another said the chances of a recession have increased.

U.S. factory orders slipped in February, reflecting declines in the industrial machinery and transportation equipment industries, the government said. But analysts focused on a decline in inventories as a sign that the hard-hit manufacturing sector may be poised for a turnaround.

Meanwhile, the Federal Reserve Bank of Chicago said its national activity index dipped in February, suggesting the likelihood that the U.S. economy may be in a recession has increased, although it is not at all certain.

“As an early warning, from the value of the index that we see here, there is an increasing probability that the economy is in a recession, but it is still very early,� Chicago Fed senior economist Charles Evans said.

The data added to an already muddied picture of the shaky U.S. economy. Recent indicators showing that consumer confidence may be climbing back and that the dramatic downturn in the manufacturing sector may be over have offered glimmers of hope. But reports on industrial activity and durable goods orders, plus continued declines in the stock markets, have some analysts thinking the downturn is far from over.

“We’ve had a spate of good news in recent weeks, but again the big unknown clearly is what is going on in asset markets, specifically, the equity markets,� FleetBoston Financial chief economist Wayne Ayers said.

Economists are looking to see whether consumers will clamp their wallets shut in response to watching their stock portfolios tumble. Consumer spending accounts for two-thirds of U.S. economic activity.

U.S. factory orders slipped 0.4% in February to a seasonally adjusted $363 billion after tumbling 4.3% in January, the government said. Excluding the volatile transportation sector, orders dipped just 0.3%.

Despite the decline, economists said there may be a silver lining. Inventories fell 0.1% in February, following a 0.5% increase in the previous month.

As the U.S. economy slowed dramatically starting in late 2000, manufacturers, who were geared up for continued strong activity, found inventories piling up on their shelves. Analysts have been waiting for the inventory levels to decline as a sign that output is aligning with demand, which would lead to a turnaround in the depressed manufacturing sector.

The Chicago Fed said its U.S. economic index was -0.89 in February, down from a revised -0.87 reading in January. The three-month moving average, which smooths out month-to-month changes, was -0.81 in February, down from -0.78 in January.

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Factory Orders

New orders, in billions of dollars, seasonally adjusted:

February: $363 billion

Source: Commerce Department