Economy outlook improves

WASHINGTON – A fitful economic recovery is drawing strength from a stabilizing job market and signs that manufacturing will contribute to the rebound. The evidence signals a better-than-expected end to the year, though doubts remain about growth in 2010.

The latest signs of improvement came in two reports Thursday. The Labor Department said the number of newly laid-off workers filing claims for unemployment aid fell more than expected last week. The four-week average for claims, which smooths out fluctuations, fell for the 16th straight week, to its lowest point since September 2008, when the financial crisis hit with full force.

Further evidence of a gradually healing economy was a Commerce Department report that orders to U.S. factories for big-ticket durable goods rose in November. The overall increase was less than expected. But excluding the volatile transportation category, the gains were twice what economists had forecast.

Stocks rose after the positive reports, ending a holiday-shortened session at new highs for the year. The Dow Jones industrial average rose 53.66, or 0.5 percent, to 10,520.10.

Stocks have managed to push higher in December on optimism about the economy, but at a more subdued pace than in recent months. As the year winds to a close, the Standard & Poor’s 500 index is up 66.5 percent since hitting 12-year lows in March.

Economists saw the new data as further signs that the economy is strengthening as 2009 nears a close. Adding to the optimism was a wave of shoppers – some snowed in by last weekend’s East Coast snowstorm – heading to the malls for last-minute purchases Thursday.

“We are seeing progress in a number of areas, from increases in consumer spending and business spending to growth in exports,” said Brian Bethune, an economist at IHS Global Economics. “It all adds up to a recovery that is gaining some momentum.”

Bethune said he’s forecasting that the economy, as measured by the gross domestic product, will expand at an annual rate of around 4 percent in the current quarter. Helping fuel the gains, businesses are boosting orders to factories to restock their depleted shelves.

Bethune said growth would likely slow in 2010 to a rate of around 2.5 percent. But he said there will be enough momentum to remove the threat that the recovery from the nation’s deepest recession in seven decades might falter. Other economists agreed that the rebound in factory orders reflected rising confidence by businesses.

Orders for durable goods edged up 0.2 percent last month, weaker than the 0.5 percent gain economists had expected. But excluding transportation, orders rose 2 percent over the October level, double what economists had forecast.

Demand for commercial aircraft plunged 32.6 percent. Total orders for transportation products sank 5.5 percent as demand for motor vehicles and parts edged down 0.2 percent, the weakest showing in five months.

Strength in November came in areas such as orders for machinery, which rose 3.5 percent. Orders for primary metals such as steel grew 1.4 percent. And orders for computers and electronic products jumped 3.7 percent, the biggest gain since February.

Analysts noted that demand for non-defense capital goods excluding aircraft, considered a proxy for business equipment spending plans, posted a solid rise of 2.9 percent.

“Firms are starting to believe they can come out of their shells and start thinking about the future,” said Joel Naroff, chief economist at Naroff Economic Advisors. “It looks like the business community has concluded this recovery is for real.”

The number of new jobless claims fell to 452,000 last week on a seasonally adjusted basis. That was better than the decline to 470,000 that economists had expected. And the four-week average for claims, which smooths out fluctuations, fell to 465,250.

The decline in claims continued a trend that began last summer. The improvement is seen as a sign that jobs cuts are slowing and hiring could pick up early next year.