Durable goods orders jumped 5.2% in December 2007, well above the 1.6% estimate, the U.S. Commerce Department announced Tuesday, flying in the face of predictions of the recession's onset. It was the largest gain in orders since July 2007.

The index increased a revised 0.5% in November 2007. Excluding transportation goods, the index increased 2.6% for the month.

The department said the nation registered higher demand for airplanes, communications equipment, and defense capital goods in December 2007,

Non-defense capital goods

Bookings for non-defense capital goods excluding aircraft increased 4.4%, the most since March 2007. Shipments climbed 2%, the most since March 2006.

Economist Steve Affinito told BloggingStocks Tuesday the December 2007 report was surprisingly bullish.

"The non-defense capital goods increase of 4.4% was impressive, because that's an indicator of future business investment," Affinito said. "It looks like business investment is faring better than we had anticipated, despite weakness in other areas of the economy, such as housing."

However, Affinito cautioned that this was a December 2007 report, and that "signs of the slowdown's bite undoubtedly will appear in future durable goods orders reports for the initial months of 2008."

Retail sales declined 0.4% in December 2007 -- worse than expected -- as sales of most durable goods fell, the U.S. Commerce Department announced Tuesday in a report that raised concerns that the U.S economy has entered a recession.

Economists had expected December 2007 retail sales to decline 0.1%. Further, retail sales rose 4.2% in 2007, the smallest increase in five years.

Excluding autos, retail sales fell 0.4% in December, and declined 0.2% while excluding both autos and gasoline sales, the Commerce Department said.

Recession evidence piling up

Economist David H. Wang told BloggingStocks on Tuesday that the evidence indicating that the U.S. economy has fallen into a recession is mounting.

Consumers spent more than they earned in November 2007, returning to near-decade long characteristic that has been responsible for driving a considerable portion of U.S. economic growth, the U.S Commerce Department reported Friday. Meanwhile, nominal income rose just 0.4% in November 2007, below the 0.5% estimate, the department announced. Nominal income gained 0.2% in October 2007.

Consumer spending rose 1.1% in November 2007, above the 0.9% estimate. Spending on durable goods -- such as autos, furniture and appliances -- increased 0.6%, after a 0.1% decline in October 2007. Non-durable goods spending also rose 0.6%, and services spending gained 0.5%.

Industrial Production fell 0.5% in October, considerably worse than the consensus estimate of a 0.1% production gain, the U.S. Federal Reserve announced Friday. It was the largest decline in IP since January 2007. Industrial Production rose 0.2% in September.

Meanwhile, capacity utilization --- which measures the percent of plants in use --- fell to 81.7% in October from 82.2% in September. Analysts had expected a 0.1%-0.3% rise in the utilization rate.

Production at factories declined 0.4%, utility production declined 1.6%, and mining output fell 0.6%. Also telling: production of consumer durable goods dropped 0.8%.

Analysts said the October industrial production decline adds to the argument that the U.S. housing sector's woes - - the most serious housing slump in more than a decade - - are beginning to spill over into the broader economy:

"The October industrial production statistic certainly is a disappointment. Combined with lower capacity utilization, it suggests the economy is slowing, and it's something that has to concern the Fed," economist M. David Chandler told Bloggingstocks. "This puts added focus on the November and December stats. If we see industrial production slowing in those two months, Q4 will come in very, very weak, and the U.S. economy will be growing at near-stall levels."

Several major pieces of economic news were released this morning, and all were good. Personal Spending rose more than expected, the fastest growth in two years. The Chicago PMI report rose more than expected as well. The Michigan Consumer Sentiment report seemed to hold its own. In addition, the core inflation number came in within the Fed's target range.

This is a major contrast to the numbers earlier in the week. Durable Goods and Consumer Confidence reports were terrible, and both Existing and New Home Sales indicated that there appears to be no end in sight for the housing slump. The only good number was Second-Quarter GDP. However, this was prior to the turmoil created in the markets by the credit crisis.

Then, why did the stock market rally on the bad news and is going down today on these positive economic reports? It's the liquidity. The stock market is driven by money and credit. As there is greater availability and lower cost, the market performs better. Who is the ultimate gatekeeper for this? You guessed it: the Federal Reserve.