Factory orders rise, largest amount in months

WASHINGTON (AP) - January 3, 2008 The Commerce Department reported Thursday that orders for manufactured goods rose by 1.5 percent in November, the biggest rise since a 3.4 percent surge in July.

But all the strength came in demand for nondurable goods, which shot up 3 percent, reflecting higher oil prices. Orders for durable goods, everything from appliances to autos, actually fell by 0.1 percent, the fourth straight monthly decline.

Analysts said the drop in durable goods reflected the problems facing factories right now. On Wednesday, the Institute for Supply Management reported that its closely watched manufacturing gauge plunged to 47.7 in December, the lowest reading since the spring of 2003 when business confidence was hurt by uncertainties surrounding the invasion of Iraq. Any reading below 50 is a sign that manufacturing is contracting.

Wall Street, which had plunged on Wednesday because of new worries about a possible recession and higher oil prices, rebounded in early trading on Thursday with analysts choosing to focus on stronger job readings.

The Labor Department reported that number of newly laid off workers filing applications for unemployment benefits totaled 336,000 last week, a drop of 21,000 from the previous week. While the decline was more than double what had been expected, analysts said the improvement was skewed by the fact that many state claims offices were closed for part of last week for the Christmas holidays, giving laid off workers less time to file claims.

Private businesses added a modest 40,000 jobs to their payrolls in December, according to a separate report by payroll giant Automatic Data Processing and forecasting firm Macroeconomic Advisers.

Economists said this supported their view that the unemployment rate probably ticked up from 4.7 percent in November to 4.8 percent in December, with total payroll jobs - both private companies and government - growing by around 70,000. The government will release this report on Friday.

Joel Prakken, an economist at Macroeconomic Advisers, said employment growth at this level should be enough to keep incomes rising and consumers spending and prevent the country from dipping into a recession.

He said he was forecasting overall economic growth of around 1.5 percent in the final three months of 2007 and the first three months of this year. That would be far below the 4.9 percent growth rate of last summer but still in positive territory.

"We have a pretty pronounced slowdown but no recession in our forecast," Prakken said. He said with the help of rate cuts from the Federal Reserve the economy should rebound to growth of around 2.5 percent to 3 percent in the second half of 2008. The Fed has already cut a key rate three times with many economists predicting three more rate cuts to come as the central bank seeks to bolster consumer and business confidence which has been rattled by the steep slump in housing and the credit crisis which erupted in August.

The report on factory orders showed demand for non-defense capital goods excluding aircraft, a category which is closely watched as a signal of business investment plans, fell for a second straight month, dropping 0.1 percent after an even bigger 3 percent plunge October. The concern is that the plunge in housing and the severe credit squeeze that hit in August are causing businesses to turn much more cautious.

The total of 336,000 jobless claims was the lowest weekly figure in three weeks. It followed a revised claims total of 357,000 last week, which had been the highest weekly total since October 2005 when layoffs had surged in the aftermath of a series of devastating hurricanes along the Gulf Coast.