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Reports show economy continuing to struggle

| Saturday, Oct. 26, 2002

WASHINGTON — The nation's hard-hit manufacturers suffered another drop in demand for their products while consumer confidence slid to the lowest level in nearly 10 years, raising new fears of a possible double-dip recession.

However, housing remained one of the few bright spots as sales of both new and existing homes posted strong increases in September.

A batch of new reports released Friday depicted an economy continuing to struggle.

The Commerce Department said that orders to U.S. factories for big-ticket durable goods fell by 5.9 percent in September, the biggest decrease in 10 months and the third decline in the past four months. The new weakness was led by a huge plunge in orders for communication equipment, but the declines were widespread across most industries.

Meanwhile, consumer confidence as measured by a University of Michigan survey declined to 80.6 in October, the lowest level since 1993, as Americans were spooked by the falling stock market and rising concerns about a possible war with Iraq.

It marked the fifth monthly decline in confidence and raised worries that consumer spending, the biggest prop holding up the economy, could be in danger of faltering.

"Unless the downward momentum is quickly halted, the accumulated loss in consumer confidence could tip the economy back into recession," said Richard Curtin, director of the Michigan survey.

The brightest spot for the economy continued to be housing sales, with new home sales rising by 0.4 percent in September to a record annual rate of 1.021 million units while sales of existing homes were up 1.9 percent to an annual rate of 5.40 million units.

Both home and car sales have been red-hot this year, reflecting the Federal Reserve's decision to keep a key interest rate at a four-decade. But private economists worried about what could take up the slack if consumers decide to take a breather.

"The economy is creeping ahead, but only just barely," said Bill Cheney, chief economist at John Hancock Financial Services in Boston. "As long as another shoe doesn't drop, we'll probably be fine."

With Americans scheduled to go to the polls in just 12 days to decide which party will control the House and Senate, Democrats have gone on the attack, charging that President Bush and the Republicans are mishandling the economy while Bush and the GOP accuse the Democrats of blocking needed tax cuts.

The worse-than-expected 5.9 percent decline in orders for durable goods followed news earlier this week of a fourth straight monthly decline in the Index of Leading Economic Indicators, indicating weakness for the next half-year, and the Fed latest survey of business conditions showed sluggish sales and a lackluster job market.

The 5.9 percent drop in orders for durable goods in September followed a 0.6 percent decline in August and a 4.5 percent drop in June. Only July posted an increase during this period, a gain of 8.5 percent.

Jerry Jasinowski, president of the National Association of Manufacturers, said U.S. factories were struggling to mount an "uneven recovery" with "uncertainty regarding the stock market and possible war in the Middle East" continuing to impede business investment.

Analysts noted that orders for non-defense capital goods, considered a key barometer of business investment plans, fell by 12.6 percent in September.

"In a month where the drumbeats of war with Iraq were intense, it should surprise nobody that corporations became quite conservative in their spending," said Joel Naroff, head of a Holland, Pa., forecasting firm.

In contrast, David Seiders, chief economist for the National Association of Home Builders, said his industry was headed for its best performance on record, due to the low interest rates and the weak stock market, which has meant more Americans are turning to home purchases as an investment choice.

"Housing has been a strong beacon in the economy's fog," he said. "There is no doubt that we are heading for a record sales year."

He said sales of new homes would likely hit 950,000 for the entire year, up from last year's record level of 908,000, while sales of existing homes have averaged 5.56 million through the first nine months of this year, putting them on track to top last year's record sales of 5.23 million homes.

The Fed has kept a key interest rate at a 40-year low of 1.75 percent since last December, a level which has spurred the boom in home sales and auto sales, where car makers have used zero-rate financing deals to lure consumers into dealer showrooms.

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