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Indicators show further slowing

Published 9:00 pm Thursday, January 4, 2007

By Associated Press

WASHINGTON – Economic indicators flashed mixed signals Thursday, with retailers reporting disappointing holiday results, service industries slowing at year’s end and factory orders falling.

Analysts said the reports depicted an economy going through a slow period in response to a serious housing slump but that it did not show strains that could bring on a recession.

According to the economic data:

  • Many big retail chains reported sales in December below expectations. The holiday shopping season had started with a bang and then turned to a whimper. Sales were held back by warmer-than-normal weather that did not entice consumers to buy winter clothing and by the growing prevalence of gift cards, which are not counted as sales until they are redeemed.

  • Orders to factories for manufactured goods rose by 0.9 percent in November, a smaller-than-expected gain. Demand fell for home appliances and furniture, two industries connected to the slumping housing market, and orders dropped for new cars.

  • The service sector, where most people in the U.S. work, grew at a slower rate in December than in November. The Institute for Supply Management said its index of business activity in service industries dipped to 57.1 last month, down from 58.9 in November.

    Despite that reading, analysts said it was at a solid level that indicated these industries, which account for 80 percent of the economy, have withstood the sharp drop in housing activity.

    “The services sector is still in pretty decent shape,” said Joel Naroff, chief economist at Naroff Economic Advisors. “The slowdown has not reached deeply into industries outside of manufacturing.”

    On Wall Street, the Dow Jones industrial average managed to eke out a small gain, rising 6.17 points to close at 12,480.69 after having fallen by about 50 points earlier in the session.

    Investors were whipsawed between worries about the lackluster report on retail sales and hopes for lower gasoline prices after crude oil dropped below $56 per barrel.

    The 0.9 percent increase in demand for manufactured goods pushed total orders to $394.3 billion. Demand for durable goods – items expected to last at least three years – rose 1.6 percent. The level was unchanged for nondurable goods such as gasoline, food and paper products.

    The strength in orders in November was led by a 43.6 percent surge in demand for military aircraft. Orders for commercial airplanes rose by 0.8 percent and orders for motor vehicles declined by 2.4 percent, extending a sales slump as consumers turn away from the once-hot gas guzzling sport utility vehicles.

    Industries tied to the slumping housing market showed weakness. Furniture orders fell by 3.3 percent while demand for household appliances dropped by 7.8 percent.

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