Factory orders for costly manufactured goods in July recorded the biggest gain in four months. Meanwhile, sales of new homes slid, according to a pair of reports that offered a mixed picture of economic activity.

The Commerce Department reported Wednesday that orders for durable goods -- big-ticket items expected to last at least three years -- rose 1.7 percent in July from the previous month. Helping was a stronger demand for airplanes, machinery and communications equipment.

The largest increase since March followed a 1.1 percent gain in June. Also, July's showing was better than the 1 percent rise that some economists were forecasting.

Jerry Jasinowski, president of the National Association of Manufacturers, said the latest durables report offered "solid evidence that the manufacturing recovery is on track."

A second report from the department showed that sales of new homes declined by a sharp 6.4 percent in July from the previous month to a seasonally adjusted annual rate of 1.13 million units. The decline, steeper than analysts expected, left home sales at their lowest level since December.

Sales in June declined 5.6 percent, according to revised figures, which showed sales were even weaker than previously reported.

The drop in home sales comes during a sluggish jobs climate and high energy prices, which may have made some people wary of making a big financial commitment, analysts say.

Even with the slowdown, the chief economist at the National Association of Home Builders said he thinks sales of both new homes and previously owned homes are still on track to hit new record highs for all of 2004. "There's been some cooling, but the housing market is still in very, very good condition," David Seiders said.

President Bush is counting on the economy to come out of the rough patch experienced in the early summer by the time voters go to the polls in November.

Sen. John F. Kerry (Mass.), the Democratic nominee for president, says Bush's economic policies, especially his tax cuts, are flawed, and that they mostly help the wealthy but squeeze the middle class. Kerry also contends Bush's policies have not created a significant number of jobs.

The Federal Reserve, wanting to keep inflation under control, on Aug. 10 raised a key interest rate -- the federal funds rate, which is the interest rate charged between banks on overnight loans -- to 1.5 percent from 1.25 percent. The Fed took the action even though Fed Chairman Alan Greenspan had acknowledged weeks before the Fed meeting that the economy had hit a "soft patch" in June.

In the manufacturing report, orders for all transportation equipment rose 5.6 percent in July, the biggest gain since February, mostly reflecting stronger demand for airplanes. In June, transportation orders rose 4.7 percent.

Excluding orders for transportation equipment, bookings for all other goods nudged up 0.1 percent in July, an improvement from the 0.3 percent decline in June. Orders for machinery in July increased 2.1 percent, up from a 1.1 percent rise the month before.

Orders for non-defense capital goods jumped 9 percent in July. That was the largest rise since July 2002, and it followed a 1.1 percent advance in June. The category is watched closely by economists as an indication of businesses' plans to boost spending on equipment and other goods.

There were some soft spots: orders for automobiles dropped 5.3 percent in July, the largest decline in nearly a year. Orders for computers and fabricated metal products also showed declines.

In the housing report, new-home sales in July fell in every region except for the Midwest, where sales climbed to a new record annual rate of 260,000 units, representing a 21.5 percent jump from June's level.

A construction worker adjusts doors on a luxury home being built in the Chicago area. Sales of new homes in July slid 6.4 percent from June's level.