updated 6/24/2009 2:28:54 PM ET 2009-06-24T18:28:54

New signals the recession could be nearing a bottom emerged Wednesday in figures showing that orders to U.S. factories surged last month for everything from computers to aircraft and that a gauge of business investment rose by the most in nearly five years.

Major Market Indices

Still, an unexpected drop in new-home sales in May made clear that any rebound in the housing market, and the broader economy, likely will be long and slow.

Economists said the two reports showed an economy no longer in free-fall but still unable to mount a sustained recovery from the longest recession since World War II.

Hours after the Commerce Department figures were released, policymakers at the Federal Reserve decided to leave a key interest rate unchanged at a record low between zero and 0.25 percent, where it has been since December. Wrapping up a two-day meeting, the central bank repeated a pledge to leave rates low “for an extended period” to give the weak economy time to heal.

Though energy and other commodity prices have risen recently, the Fed said inflation will remain “subdued for some time.” But Fed policymakers offered no new assurances that they would step up their purchases of government bonds and mortgage securities to try to drive down rates on consumer debt. That rattled bond investors who fear the prospect of higher interest rates. So did the Fed’s observation that commodity prices are rising.

The mention of higher prices hit the Treasury market because the value of returns on fixed-income investments can erode quickly if inflation occurs. Stocks also fell after the Fed’s announcement. The Dow Jones industrial average closed down 23 points at 8,299.86. Broader stock averages ended the day higher, though.

The 1.8 percent increase in durable goods orders in May was far better than the 0.6 percent decline that economists expected. It matched the rise in April, with both months posting the best performance since December 2007, when the recession began.

Orders for non-defense capital goods, a proxy for business investment plans, jumped 4.8 percent, the biggest increase since September 2004. That could signal that businesses have stopped trimming their investment spending.

The back-to-back monthly gains in orders for durable goods — items expected to last at least three years — were further evidence that a dismal stretch for U.S. manufacturers may be nearing an end. But analysts say any sustained rebound is months away.

Rebecca Blank, undersecretary of commerce for economic affairs, cautioned against reading too much into the big jump in durable-goods orders because the data can be volatile. But she said the report appears to show that the recent plunge in activity has subsided.

“The $64,000 question is how long we will be in this flat period,” Blank said in an interview. “You don’t want to call too much of a recovery yet.”

Private economists also were cautious, in light of rising unemployment, record levels of home foreclosures and spreading global economic weakness that’s depressing U.S. exports.

“The U.S. factory sector still has a long way to go and is facing the headwind of one of the deepest global contractions in a generation,” said Cliff Waldman, an economist with the Manufacturers Alliance/MAPI.

Brian Bethune, chief U.S. financial economist at IHS Global Insight, was a bit more optimistic. He said the economy was nearing a turning point “from recession to recovery.”

The other government report showed new home sales dropped 0.6 percent in May to a seasonally adjusted annual rate of 342,000, from a downwardly revised April rate of 344,000. Economists had expected a sales pace of 360,000 last month. Sales were down nearly 33 percent from a year ago.

The median sales price, $221,600, fell 3.4 percent from a year earlier but was up 4.2 percent from April.

Excluding transportation, orders for durable goods posted a 1.1 percent rise in May, also better than the 0.4 percent drop that had been expected. Demand for transportation products rose 3.6 percent. That reflected a 68.1 percent jump in orders for commercial aircraft, a volatile category that had fallen 1.4 percent the previous month.

The big increase in aircraft offset further weakness in the troubled auto sector. Demand for motor vehicles and parts fell 8.1 percent in May, signaling disruptions from the bankruptcy filings at Chrysler LLC and General Motors Corp.

Orders for machinery rose 7.7 percent last month. Demand for computers and related products surged 9.4 percent.

The overall economy, as measured by the gross domestic product, has posted the worst six-month stretch in more than 50 years. The government is scheduled to revise the first-quarter GDP figure Thursday, but analysts expect the overall figure to stay at a decline of 5.7 percent.

Many economists say that GDP in the current quarter will show a much smaller decline, around 2 percent, with growth returning in the second half of this year.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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