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Prosperity Just Around The Corner?

There was a badly needed dose of good news for the battered U.S. economy on Friday. Consumer confidence soared and new home sales jumped. Even a decline in orders for big-ticket items masked the fact that the market for expensive manufactured goods is largely robust.

The news heightened hopes that the worst of the recession is over and that the economy will make a recovery in 2002.

Here are the highlights:

  • Consumer confidence rose sharply in December following three months of dramatic decline, as the erosion of the economy and job market appeared to begin leveling off.
  • The Commerce Department reported that new-homes sales soared by 6.4 percent in November, the largest increase in almost a year, helped out by mild weather and low mortgage rates.
  • Although a big drop in demand for military planes pushed down orders for big-ticket items last month, many other costly manufactured goods posted gains.

    The strength of the rebound in consumer confidence was unexpected. The Conference Board, a New York-based private research group, said its index of consumer confidence surged to 93.7 in December and revised up its November reading to 84.9 from a seven-year low of 82.2. The index is compiled from a survey of 5,000 U.S. households.

    "The deterioration in economic conditions appears to be reaching a plateau," said Lynn Franco, director of the Conference Board's Consumer Research Center.

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    "Consumers' short-term optimism is no longer at recession levels, and the upward trend signals that the economy may be close to bottoming out and that a rebound by mid-2002 is likely," Franco said.

    The Conference Board's Present Situation Index, which measures Americans' views of the economy right now, edged up to 96.9 in December from 96.2 in November. But optimism better times lie ahead in the coming simonths helped propel the Expectations Index to 91.5 from 77.3 in November.

    The increase in new-home sales followed a 1.7 percent advance in October and came despite rising unemployment and sagging consumer confidence. The housing market, one of the economy's few bright spots, has remained stable during the more than yearlong economic slowdown, largely because of low interest rates.

    Meanwhile, orders to U.S. factories for durable goods - items expected to last at least three years - fell by 4.8 percent in November, after shooting up by 12.5 percent in October.

    But virtually all the weakness in November came from a 57.9 percent drop in new orders for airplanes, mostly stemming from slackened demand for defense aircraft and parts, the government said.

    That masked gains elsewhere.

    Excluding the volatile transportation category, which can swing widely from month to month, durable-goods orders rose a solid 1.1 percent, the first back-to-back increase since November-December 1999.

    New orders for automobiles rose a strong 4.5 percent in November, on top of an 11 percent increase in October. Free financing for cars and trucks has been a main factor behind stronger sales in the last couple of months.

    Orders for computers and electronic equipment grew by 2 percent, following an 8.9 percent advance in October. Demand for computers and semiconductors rose, while orders for communications equipment dipped.

    Electrical equipment and household appliances saw orders increase by 2.6 percent in November, after a 4.5 percent gain. Orders for primary metals, including steels, rose 1.4 percent, following a 2 percent decline.

    Shipments, a good barometer of current demand, edged up by 0.2 percent in November, led by a big jump in shipments for automobiles and car parts. In October, shipments rose 3.4 percent.

    The nation's manufacturing sector has been hardest hit by the sour economy, which tipped into recession in March. To cope, factories have sharply cut production and laid off workers.

    In the housing report, the 6.4 percent rise, the biggest increase since December 2000, pushed new-home sales to a seasonally adjusted annual rate of 934,000, the highest level in eight months.

    By region, sales rose by 6.1 percent in the Northeast to a rate of 70,000. In the Midwest they jumped by 13.1 percent to a rate of 173,000 and in the South, they grew by 7.7 percent to a rate of 478,000. But in the West, sales fell by 0.9 percent to a rate of 213,000.

    Economists say mild weather and low mortgage rates helped sales last month. The average interest rate on a 30-year fixed rate mortgage was 6.7 percent in November, compared with 7.7 percent for the same month a year ago.

    The Federal Reserve, in an effort to revive the economy, has cut interest rates 11 times this year. The Fed hopes that the reductions - which pushed borrowing costs to their lowest level since November 1965 - will induce consumers to spend and businesses to invest.

    Many eonomists project the Fed's aggressive action will help bring about an economic recovery by the spring.

    In another report, new claims for unemployment insurance rose last week by a seasonally adjusted 7,000 to 392,000, the Labor Department reported.

    The smaller-than-expected rise may have been affected by an upcoming policy change in California, where residents are to receive an increase in unemployment benefits early next year. That may have prompted some laid-off workers to delay filing new claims, a government analyst said.

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