Steve Quayle News Alerts

Sept. 26, 2002

WASHINGTON (Reuters) — Economic news gave markets a lift for a change as jobless claims, durable goods orders and new-home sales all beat expectations.

Jobless claims

New claims for jobless benefits fell for the second straight week, wiping out steady gains in recent weeks, a government report showed Thursday, though the number remained stubbornly high.

First-time claims for state unemployment insurance — a rough guide to the pace of job layoffs — dropped 24,000 in the week ended Sept. 21 to 406,000, down from a revised 430,000 in the prior week, the Labor Department said. The number of new applications fell more steeply than economists' forecasts for a drop to 421,000 from the original measure of 424,000 for the Sept. 14 week.

New claims held above the 400,000 watermark for the fifth straight week, a key level viewed by economists as a sign of a lackluster labor market.

Over the past four weeks, new claims have averaged 419,000, down from a four-week average of 420,000 in the previous week, the department said.

The Labor Department said it had no specific evidence explaining the sharp drop in the weekly figure.

In a sign the pace of hiring remains poor, the number of people who continue to draw jobless benefits rose for the third straight week to 3.68 million in the Sept. 14 week, the latest week for which figures are available.

Durable goods

In another report, weaker military demand pushed durable goods orders down in August, but the drop was smaller than expected and a rise in capital goods orders offered a glimmer of hope a long-lasting business investment slump may be nearing an end.

Orders for durable goods — costly manufactured items intended to last at least three years — fell 0.6% last month after a downwardly revised 8.6% rise in July, the Commerce Department said. Economists polled by Reuters had expected durable goods orders to drop 2.6%.

"It doesn't suggest that you've got an economy getting ready to go into a significant softening here," said Tim O'Neill, chief economist at Bank of Montreal/Harris Bank.

While overall orders slipped, the department said orders would have risen 0.6% if defense orders were excluded, the fourth increase in the last five months for that category.

In addition, non-defense capital goods orders — a gauge of capital spending — rose 5.9% and 0.6% excluding volatile aircraft orders, building on increases in July.

Officials at the Federal Reserve have said a pickup in business capital spending is vital to ensuring a solid, sustainable recovery.

Amid concerns over corporate profits and a great deal of uncertainty over the economy's path, businesses have shown a reluctance to step up capital spending.

While business investment continued its long slide in the second quarter, the speed of its retreat slowed, raising hope that a turnaround could be at hand, a hope bolstered by the August durable goods report.

"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," O'Neill said.

The report, however, was mixed by sector. Orders for primary metals rose 1.9%, electrical equipment demand gained 3% and the transportation equipment category rose 0.2%, with strength in civilian aircraft orders but weak demand for cars and military planes.

In contrast, orders for fabricated metal products dropped 3.5%, machinery was off 2.5% and computers were down 0.3%.

Unfilled orders rose 0.4%, the biggest gain since last October. In addition, inventories of manufactured durable goods dropped 0.2%, the 19th consecutive monthly decline. Both of those factors suggest production could pick up down the road.

New-home sales

A third report showed sales of new homes rising to a record level in August, as low interest rates fueled appetite for home buying.

Sales of new single-family houses climbed 1.9% to a seasonally adjusted annual rate of 996,000 units last month from a downwardly revised 977,000 in July.

New-home sales topped the expectations of analysts polled by Reuters, whose average forecast was a pace of 981,000.

"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.

The housing market has been thriving even as the rest of the economy struggles to recover from last year's recession. Analysts attribute this in large part to 30-year fixed-rate mortgage interest rates that are at lows not seen since the mid-1960s.

New home sales were strong in the West, rising 7.4%, and in the South, where activity climbed 1.3%. The sales level was unchanged in the Midwest but fell 9.5% in the Northeast.

Inventories grew, but buyers snapped up homes faster than they came on the market. There were 332,000 new homes available for sale at the end the month, a six-year high. Still, the supply of new homes available at the month's sales pace fell to 4 months' worth from a revised 4.1 months in July.

Existing home sales fell in August, the National Association of Realtors said on Wednesday, which had led some observers to say the housing market may be losing steam.

But new-home sales, which are recorded when a buyer signs a contract with a builder, are an earlier description of economic activity than existing home sales, which are noted after the closing of the deal, said Kevin Logan, senior economist for Dresdner Kleinwort Wasserstein.

"New-home sales tend to lead existing home sales by a bit," he said.

http://www.usatoday.com/money/economy/2002-09-26-economy-wrap_x.htm