Durable goods orders increase

NEW YORK —  Orders to factories for big-ticket manufactured goods jumped unexpectedly in December, good news amid signs that the U.S. economy may be tipping toward a recession.

Still, analysts said that the 5.2% growth in orders -- though potentially boosting industrial output in coming months -- probably came from overseas demand and that domestic growth faced continuing threats from tight credit and mortgage markets that have forced consumers to retrench.

The Conference Board report Tuesday that consumer confidence fell sharply this month on worries over deteriorating business conditions and a weakening job market was another sign of consumer angst.

The New York-based business research group said that its consumer confidence index dropped to 87.9 in January from a revised 90.6 in December. That put it back to about where it was in November, when it registered 87.8. This month’s reading was just a tad below the 88 expected by Wall Street analysts, according to Thomson/IFR.

Although acknowledging that the factory orders report was a positive sign, economists worried that it would be misinterpreted as signaling greater strength than existed.

“So make no mistake: The U.S. economy remains under severe stress,” said Bernard Baumohl, managing director of the Economic Outlook Group, in a research note. “When you have more than 70% of the economy [consumers] in retrenchment mode and a banking sector shutting down the lending window, the prospects of a recession are still very real.”

David Huether, chief economist of the National Assn. of Manufacturers, also welcomed the orders report as “confirmation for manufacturers that export-led growth is continuing.” But he worried that the downturn in housing would hurt the economy.

“This is why immediate action from Capitol Hill on an economic stimulus package is needed to encourage both consumer spending and business investment,” Huether said.

The White House and Congress on Thursday announced a joint agreement to work on an economic stimulus program that’s expected to include tax rebates for consumers.

That came two days after the Federal Reserve on Jan. 22 cut its short-term interest rate target three-quarters of a percentage point to 3.5% to boost the economy.

Fed policymakers began a two-day meeting Tuesday, and many analysts and investors expect an additional rate cut of at least a quarter of a point.

Lynn Franco, director of the Conference Board Consumer Research Center, said the consumer confidence survey -- which is based on a sample of 5,000 U.S. households -- indicated that consumers in January appeared more pessimistic about the economy.

It was unclear how much to read into the data because the survey was taken before the Fed’s big rate cut and the announcement of the stimulus program, both aimed at boosting consumer spending.

The strength in durable goods orders came from a big increase in demand for commercial aircraft. But even excluding the transportation sector, orders posted a solid 2.6% gain.

Despite the strong December, it was a lackluster year. Orders for all of 2007 rose just 0.97% after much bigger increases of 6.31% in 2006 and 9.45% in 2005. It was the poorest showing since orders fell by 3.17% in 2002, a year when the country was trying to emerge from the 2001 recession.