updated 2/4/2008 10:24:59 AM ET 2008-02-04T15:24:59

U.S. factories saw demand for their products rise in December by the largest amount in five months, a spot of welcome news that failed to change the picture of an economy struggling to stay afloat.

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The Commerce Department reported Monday that orders placed with U.S. factories rose by 2.3 percent in December. That was an improvement from the 1.7 percent gain posted in November and marked the biggest increase since July.

The performance in December was slightly better than the 2 percent rise that economists were forecasting.

Orders for “durable” — big-ticket goods, such as cars, that are expected to last at least three years — rose by 5 percent in December, up from a 0.5 percent advance in November.

Demand for “nondurable” goods — including clothing, textiles and beverages — dipped, however by 0.4 percent in December, compared with a 3 percent rise in November.

For all of last year, total orders — durable and nondurable goods — placed with U.S. factories went up by just 1.4 percent. It was the worst performance since 2002, when the economy was struggling to recover from the 2001 recession. In 2006, factory orders rose by 5.1 percent.

Manufacturers have been hard hit by the housing bust and a struggling automotive sector. They also continue to cope with fierce competition from overseas producers.

Against that backdrop, factories eliminated 28,000 jobs in January and have cut 269,000 jobs over the past 12 months, the government reported last week.

The economy as a whole lost 17,000 jobs last month. That marked the first nationwide loss of jobs since August 2003, when employers were still working to get back on their feet after the 2001 recession.

A more forward-looking report, released Friday, suggested manufacturing gained some ground in January.

The Institute for Supply Management’s index of factory activity rose last month to a reading of 50.7, an improvement from the dismal reading of 48.4 posted in December, which suggested the sector had shrunk at that time. A reading above 50 indicates growth, and below that level indicates contraction.

With fears of a recession growing, the Federal Reserve has ratcheted down interest rates — ordering two big rate cuts over the span of just eight days in January. It marked the central bank’s most aggressive rate-cutting actions in two decades.

The economy almost stalled in the final three months of last year, growing at a feeble pace of just 0.6 percent. Some economists believe growth in the current January-to-March quarter could be just as weak. Others think the performance will be worse — with the economy actually contracting during the quarter.

Under one rough rule, the economy would have to contract for six months for the country to be considered in a recession. The worry is that people and businesses will hunker down and pull back their spending, sending the economy into a tailspin.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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