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Factory orders remain sluggish

But jump in home sales is bright spot for the recovery

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WASHINGTON — America's factories saw orders for costly manufactured goods tumble in August while home sales soared, showing two sides of the fragile economic recovery.

New orders for big-ticket "durable goods" — items expected to last at least three years — dropped by 0.9 percent last month, the first decline since April, the Commerce Department reported Thursday. It marked a reversal from the 1.5 percent increase in orders registered in July.

The August showing, weaker than the 0.5 percent increase economists were forecasting, highlighted both the struggle of manufacturers to get back to full throttle and a tender spot for the national economy's revival.

"While the economy seems to be picking up steam, the nation's factories remain the little engines that hopefully can," said Joel Naroff, president of Naroff Economic Advisors.

On Wall Street, the manufacturing news pulled stocks lower. The Dow Jones industrials lost 81.55 points to close at 9,343.96.

At the same time, sales of new homes and previously owned ones were brisk in August, fresh evidence that the housing market continues to be a source of strength for the economic recovery.

New-home sales rose 3.4 percent to a seasonally adjusted annual rate of 1.15 million units. It was the second-highest level on record, which was set in June, the department said in a second report.

Sales of existing homes jumped 5.5 percent to a rate of 6.47 million, the best month on record, shattering the previous all-time monthly high reached in July, the National Association of Realtors reported.

Analysts had been expecting a decline in home sales, and some were ebullient at August's figures.

"This is outlandishly strong stuff. We feel downright heroic," said David Seiders, chief economist at the National Association of Home Builders. He said housing should help propel economic growth in the current quarter to a rate of around 5 percent.

The rise in home sales came despite higher mortgage rates last month. The average monthly rate on a 30-year mortgage in August was 6.26 percent, up from 5.63 percent in July. In the last several weeks, however, mortgage rates have been falling. This week, rates on 30-year mortgages dipped to 5.98 percent, Freddie Mac, the mortgage giant, reported Thursday.

In other economic news, new applications for unemployment benefits dropped last week by a seasonally adjusted 19,000 to 381,000, a seven-month low, the Labor Department said. But at least half of the drop was related to workers not being able to file jobless claims because of Hurricane Isabel, which pummeled the East Coast, a department analyst said.

Economists said the job market remains sluggish and will be the last part of the economy to show sustained improvement.

In the manufacturing report, the weakness in demand last month was fairly broad-based, with orders for cars, computers, communications equipment and machinery all going down.

Although economists were disappointed by the report, they were cautiously hopeful it will turn out to be only a temporary rough patch and that there will be improvements in orders in the coming months.

David Huether, chief economist at the National Association of Manufacturing, said the "near-term prospects for manufacturing look good" and called the drop in durable-goods orders in August "a normal correction" after sharp gains in June and July.

The mid-August power blackout also may have played a role in the drop, said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI.

Thursday's manufacturing report was consistent with a report from the Federal Reserve earlier this month showing that factory production dipped in August.