Economy Receives Upbeat News

The U.S economy Thursday showed signs of strength for the first time in two weeks as claims for unemployment benefits took their biggest drop in two months, orders for durable goods declined less than expected and new-home sales increased.

The government reported the number of jobless claims decreased 24,000 last week, the biggest drop since mid-July, and durable-goods orders fell 0.6%. Economists had expected August orders to decrease 3%. New-home sales unexpectedly rose last month to a record rate of 996,000.

Investors have faced a series of reports indicating the economy is faltering, including declines in manufacturing, consumer confidence and the index of leading indicators.

The most recent statistics to indicate accelerating growth came in the Commerce Department’s Sept. 13 retail report, which showed three straight monthly increases in sales.

By contrast, the drop in jobless claims was five times that expected by economists. Claims fell to 406,000 in the week ended Saturday, the Labor Department said. Still, it was the fifth week in a row that claims totaled more than 400,000, a level some economists say indicates the economy is losing jobs.

The number of workers continuing to collect unemployment benefits rose to 3.7 million during the week that ended Sept. 14, the highest in two months.

The decrease in orders to $178.4 billion for durable goods--items made to last at least three years--followed a revised 8.6% rise the previous month, the Commerce Department said. August orders declined for machinery, computers and cars, while demand rose for commercial aircraft and electrical equipment.

Sustained spending by consumers will underpin manufacturing and keep the economic recovery intact, economists said.

“Consumer spending growth was strong in the third quarter and that’s enough to keep orders growing,” said Robert T. McGee, chief economist at U.S. Trust Corp. in New York.

Excluding transportation, orders fell 0.9% last month after a revised 3.1% rise.

Orders for non-defense capital goods excluding aircraft, a measure of business investment, rose 0.6% in August after increasing 7% the previous month.

Inventories of durable goods fell 0.2% last month, while unfilled orders increased 0.4% after a 0.1% rise.

Other statistics show manufacturing stalled last month. U.S. industrial production dropped 0.3% in August, the first decline this year, according to the Federal Reserve. Companies made fewer autos, appliances and home electronics.

Based on another report Thursday on new-home sales, builders will sell 946,000 new homes in 2002, eclipsing the record 908,000 sold last year.

Rates on 30-year mortgages are at the lowest levels in a generation, bolstering home sales and keeping the economy going at a time other industries are losing speed.

Americans, stung by a third year of falling stock prices, are buying homes as investments because houses generally have been rising in value or, at a minimum, have retained their value.

The report follows by one day a survey showing that existing-home sales unexpectedly dropped in August to the second-lowest level of the year. Sales fell to a 5.28-million annual rate. Previously owned homes account for 85% of the market.