Jan. 27, 2006--With the pace of growth slowing, business owners took time to invest in new equipment in December, preparing for an expectedly busy start to the new year. Here's a look at this week's economic developments and how they may impact your business.
Growth Spurt Ahead
A forward-looking report from the Commerce Board on Monday was upbeat about near-term economic growth -- closely reflecting the guarded optimism of small businesses in recent months.
The private national research group's monthly Index of Leading Indicators, based on a gauge of 10 key economic indicators, rose 0.1% in December to 138.5, following a 0.9% increase in November.
Six of 10 leading index components made gains in December, led by consumer expectations, real money supply, stock process, average weekly initial jobless claims, and new orders for consumer goods, the board reported. Vendor performance, building permits, and average weekly manufacturing hours were among the components seeing declines, the report showed.
The board's Coincidence Index, which measures current economic activity, also made gains in December -- rising 0.2% to 121.1, after a 0.4% gain in November. Industrial production, employees on nonfarm payrolls, and manufacturing and trade sales were stronger, while personal income held steady, the index showed.
December marked the third consecutive month of gains in the leading index, boosting its six-month average growth rate to 2.1%, compared to just 0.6% in May. The index shot up rapidly from mid-2003 to mid-2004, when it began fluctuating within a range of more moderate gains up until the end of last year.
The latest figures likely signaled a spurt of growth this spring, followed by slower gains later in the year, Conference Board researchers said.
An early indication of near-term growth came Thursday, with the Commerce Department reporting a $2.8 billion upswing in factory orders for durable goods in December, led by sudden demand for business equipment.
Overall, durable-goods orders jumped 1.3% in December to $228.1 billion, after a 5.4% increase in November, the department reported. Half of the gains, a full $1.9 billion, came from business and corporate spending on new machinery and equipment, the report showed -- the sharpest monthly increase in over a decade.
Shipments of manufactured durable goods -- such as machinery, computers, and appliances -- were also on the rise in December, by 3.5% to $221.1 billion, the report showed.
Housing Market Still Cooling
Continuing a recent downward trend in the housing sector, existing-home sales plunged by 5.7% to an annual pace of 6.6 million, compared to 7 million in November, the National Association of Realtors reported Wednesday.
The national median price for existing homes was $211,000 in December, a 10.5% increase from the previous year, the report showed.
With home sales already in decline, prices are expected to follow suit, according to association president Thomas Stevens. "We're coming off of five years of tight supply, and many sellers are accustomed to expecting very strong price gains and exceptional returns on their investment, Stevens said in a statement. "With the supply of homes improving and buyers having more choices, the rate of price growth should come down to more normal levels this year.
Jobless Claims Rise
First-time claims for unemployment insurance rose to 283,000 in the week ending Jan. 21, an increase of 11,000 from the previous week, the Department of Labor reported Thursday. The highest rate of first-time jobless claims was in Alaska, followed by Michigan, Puerto Rico, and Mississippi, the department said.