Buying With Confidence

Manufacturers saw demand for big-ticket products rise for the second straight month in July, while consumer confidence was up in August more than expected, both signs the national economy is on the mend.

The Commerce Department reported Tuesday that new orders for "durable" goods — costly manufactured products expected to last at least three years — went up by a solid 1 percent in July, on top of a bigger, 2.6 percent gain in June. The back-to-back gains marked a considerable improvement over the previous two months, when new orders fell by 1.4 percent in April and were flat in May.

Led by rising demand for computers, cell phones and cars, it was the third consecutive gain, reports CBS MarketWatch's Rex Nutting. However, most durables sectors reported higher shipments and orders in July, with defense goods and civilian aircraft were notable exceptions.

At the same time, a private research group said consumer confidence bounced back in August from a dip the previous month, a private research group said Tuesday.

The New-York-based Conference Board said its Consumer Confidence Index rose to 81.3 in August, up 4.3 points from a revised 77.0 in July. Analysts had expected a reading of 79.6 for August.

"The welcome bounce back in confidence this month was entirely due to consumers' optimism about the future," said Lynn Franco, director of the group's consumer research center. "However, continued optimism will depend on positive developments in the labor market."

Those reporting that jobs are "hard to get" rose to 34.1 percent from 32.7 percent in July. Consumers claiming jobs are "plentiful," however, rose to 11.1 percent, up from 10.7 percent.

July's durable goods performance was on target with analysts' expectations. The outlook for business investment continued to improve as core capital goods orders rose 0.4 percent, the third increase in a row. Orders hadn't risen three months in a row for more than a year.

Consumers also showed growing optimism about the economy over the next six months, though their assessment of current conditions again deteriorated slightly. The group's expectations index rose to 94.4 in August from 86.3 in July, while the present situation index declined to 61.6 from 63.0.

New orders for automobiles and parts rose by 5.5 percent in July, the biggest gain since January. In June, such orders went up by 3.3 percent.

Excluding all transportation equipment, which can swing widely from month to month, all other orders increased by 1.7 percent in July, more than twice the 0.6 percent rise that economists were calling for.

Orders for machinery went up 1.8 percent in July, after a 2.9 percent rise. For communications equipment orders soared 11.8 percent, up from a 0.6 percent increase in June. Computer orders rose 2.4 percent in July, on top of a 4.3 percent gain in June.

With signs that the economy is rebounding, the Federal Reserve earlier this month decided to hold a key short-term interest rate at a 45-year low of 1 percent. Short-term rates could stay near rock-bottom levels through the rest of this year, analysts said.

Economists believe that low short-term rates, along with fatter paychecks and other tax incentives from President Bush's third tax cut should help lift economic growth in the second half of this year. Some are predicting economic growth in the second half will clock in at an annual rate of 3.5 percent pace or more.

Other recent reports also suggest that the manufacturing sector is healing. The Federal Reserve reported earlier this month that production at the nation's factories, mines and utilities jumped by 0.5 percent in July, the biggest increase since January.

Manufacturing has struggled to snap out of a spell of lackluster activity following the 2001 recession.

Factories have cut production and workers amid lackluster demand at home and overseas, where countries were coping with a global economic slowdown. At the same time, manufacturers had to compete against a flood of imported goods flowing into the United States.

Even with the recent encouraging signs of an economic revival, businesses haven't completely shed their caution. Businesses want profits to improve and want to be sure the recovery is vigorous before they step up capital investment and hiring, economists say. Those are two key ingredients for the economy to get back to full speed.