Where Is the Economy Headed?

The Statistics Break Both Ways.

A Georgia Power worker repairs a line in Atlanta. Worker productivity grew at an annual rate of 0.2 percent in the third quarter, sharply lower than in the second quarter but beating the Labor Department's earlier estimate. (By Chris Rank -- Bloomberg News)

The U.S. economy can't seem to make up its mind.

It keeps showing strength and weakness, with fresh data yesterday providing still more mixed signals -- and fueling a debate over whether the housing slump is dragging the nation into a recession.

The conflicting data could be a sign that the economy is turning, with what was at first a mild growth slowdown about to give way to a harsher downturn, some analysts said. But others echoed the Federal Reserve, countering that the worst news is still coming from businesses involved in housing and automobile production while the rest of the economy is holding up.

The situation has left many investors confused and queasy; stock prices rose yesterday after falling Friday, as did the dollar.

"No question, housing is in a recession," said Nariman Behravesh, chief economist for Global Insight, an economic research and forecasting firm. "The big question, and where people part ways, is how much effect is this going to have on consumer spending and business spending? . . . Yes, there are scary parts of the economy, but there are other parts that are doing okay."

The pessimists could point yesterday to the Commerce Department's report that new orders to U.S. factories fell 4.7 percent in October, the steepest decline in six years. Much of that reflected falling demand for home-building equipment and materials, as well as automakers' production cuts, analysts said. That echoed a report released Friday showing that manufacturing declined in November.

But optimists noted that the much larger service sector of the economy -- which includes health care, finance, education, travel and entertainment, accounting for 87 percent of the nation's economic output -- grew more briskly in November than in the month before, according to an index published yesterday by the Institute for Supply Management.

Stocks rose yesterday because of that report's "favorable implications for the overall economy," said Stuart Hoffman, chief economist with PNC Financial Services Group.

The economy also headed into the last three months of the year in better health than previously thought, the Labor Department said yesterday, raising its estimate of productivity growth in the July-through-September period.

Growth in productivity -- output per hour of labor -- still slowed sharply from the second quarter, to a weak 0.2 percent annual rate in the third quarter, the department said. But that was higher than its earlier estimate of no growth.

The recent figures all confirm that the economy has lost momentum this year, expanding at a rapid 5.6 percent annual rate in the first three months, at a moderate 2.6 percent pace in the second quarter and at a 2.2 percent pace in the third.

Many economists, including those at the Fed, think growth will be even weaker in the last three months of the year. For example, Macroeconomic Advisers, a St. Louis forecasting firm, predicts that the economy will expand at about a 1.5 percent annual rate in the October-through-December period.