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Home > About BNE > Press Room > 2010 Archive > May > Reports Bolster Hopes for Recovery

Reports Bolster Hopes for Recovery

May 05, 2010

 WASHINGTON — A surprisingly busy month for U. S. factories and a surge in home buying are the latest signs that the economic recovery is picking up.

Orders to U. S. factories rose 1.3 percent in March, the Commerce Department said Tuesday. That was much better than the 0.1 percent decline analysts had expected. Excluding the volatile transportation sector, orders gained 3.1 percent, the biggest increase since August 2005.

Widespread activity in many industries offset a big drop in commercial aircraft. The increase offers further evidence that U. S. manufacturers are helping drive the recovery.

A separate report showed that more people than expected signed contracts on previously owned homes in March. The jump, in large part, resulted from tax incentives that have propelled the housing market this spring.

The National Association of Realtors said its seasonally adjusted index of sales agreements for previously occupied homes rose 5.3 percent from a month earlier to a reading of 102.9. It was the highest level since October and a 21 percent increase from the same month a year earlier. The index provides an early measurement of sales activity because of the usual one-to two-month lag between a sales contract and a completed deal.

The two reports offered more evidence that the recovery is strengthening. They also follow a government report Monday that said consumers stepped up their spending in March by the largest amount in five months.

As evidence of that trend, MasterCard Inc. said Tuesday its first-quarter profit jumped 24 percent as more shoppers are feeling comfortable enough about the economy and their jobs to reach for the plastic again.

But Wall Street appeared to be more focused on the growing debt crisis in Europe. Stocks dropped sharply around the world over concerns that European countries would fail to approve a $145 billion bailout package for Greece.

The Dow Jones industrial average closed down more than 225 points, erasing Monday’s 143-point gain.

At the moment, manufacturing is the leading star of the economic rebound, and economists are predicting that will continue for the rest of the year, helping to offset weakness in other areas.

Manufacturers are benefiting from not only the rebound in the United States but also rising demand for U. S. exports as the global economy recovers at a faster rate than had been expected.

Factory orders have jumped in 11 of the past 12 months, and economist anticipate more gains in the coming months.

“Businesses slammed on the brakes too hard in reducing inventories during the recession,” said Tim Quinlan, an economist at Wells Fargo Securities. “Now that the recession is over, the shelves are bare, and that means they have to ramp up their orders to restock. We are seeing pretty broad-based strength in a lot of industries.”

But Quinlan said factory orders are only 44 percent of their pre-recession peak from July 2008. Even with manufacturers producing more, Quinlan expects high unemployment and low housing values to slow economic growth.

“We are not out of the woods yet in terms of the job market,” he said. “The biggest ongoing burden for the economy is that about 10 percent of the work force is out of a job and another 10 percent are not working as much as they would like to work. That will be a drag on growth.”

For March, demand for durable goods, items expected to last at least three years, fell 0.6 percent, a better showing than a preliminary report April 23 which had put the decline at 1.3 percent.