Orders for durable goods increased in December while shipments fell. And consumer confidence in the economy fell in January, according to a pair of reports released Tuesday.

The U.S. Commerce Department reported new orders for manufactured durable goods increased 0.2% in December following a 1.3% decline in November. Excluding transportation, new orders increased 1.1%. Excluding defense, new orders decreased 0.2%. New orders for 2002 were 0.1% below the prior year. Much of the increase in new orders was due to a 17.4% hike for military hardware.
In contrast, shipments of manufactured durable goods in December decreased 1.5% following a 1.6% drop during November. Shipments for 2002 were 0.6% below the prior year.
Inventories of manufactured durable goods in December increased 0.9% compared to a 0.2% November decrease and was the first increase since January 2001.
Newport Communications Senior Economist Jim Haughey says the report contained no surprises.
"The capital goods portion of this sector finished the year flat to slightly down, while the consumer durable goods portion ended the year flat to slightly up," he said. "Durable goods have not yet strengthened enough to push the economy past its sluggish 3% growth trend."
Haughey said the decline in shipments continues the recent trend of flipping between growth and decline in alternate months. "A no-change trend for durable goods dollar shipments from domestic factories is consistent with modest Gross Domestic Product growth because prices continue to decline quickly," he said.
Haughey noted the increase in inventories is significant. "Big gains at this stage of the business cycle typically come from gains in confidence and expected higher sales--but not now. Business managers are nervous over early 2003 sales. This was probably an unintended inventory gain that will need to be worked off over the next few months," he said.
Meantime, a separate report from a private research group indicated consumer confidence was down, due mainly to concerns over the U.S. getting involved in a war with Iraq.
The Conference Board reported its Consumer Confidence Index fell to 79 in January, down from a revised 80.7 the month before. The Expectations Index, which measures how consumers feel about the economy six months ahead, fell from 88.1 to 81.4, more than offsetting the improvement in the assessment of current economic conditions that rose from 69.6 to 75.4. The index remains near 80 for the fourth month, down sharply from the mid-90s average during most of 2002.
"The January report does not change the outlook for freight volume," said Haughey. Confidence is high enough for the economy to grow modestly but not high enough for the strong growth needed to spur spending and reduce unemployment."
Haughey noted the decline in six-month expectations is likely due mostly to concern about the Iraqi situation and related concerns about energy cost.
"This is very volatile situation. Bad news could drop confidence quickly, while good news could rapidly reverse the recent decline. Whatever happens in the Middle East, the underlying restraint on confidence from a weak labor market remains, and it will not be significantly relaxed for many months," he said.