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Business Demand, Consumer Morale Up Despite 'Cliff'

Despite the threat of a fiscal cliff-triggered recession next year, durable goods orders rose last month in a sign that rebounding demand may be trumping policy uncertainty.

Orders for big-ticket, long-lasting goods were flat vs. September, the Commerce Department said Tuesday. Analysts expected a 0.8% drop. Excluding the transportation sector, orders climbed 1.5%.

Core capital goods orders, a gauge of business investment, increased 1.7%. Still they are 7% below a year earlier and even further below the post-recession high reached in December.

Motor vehicle and parts orders fell 1.6% from September, the third straight monthly decline.

Fiscal cliff fears also revived Tuesday after Senate Majority Leader Harry Reid said little progress has been made in talks. U.S. stock indexes retreated modestly.

But other data showing improved consumer sentiment, chain-store sales and home prices reinforced the bounce in durable goods.

Orders were up 2.9% for machinery, 1.1% for fabricated metals and 4.1% for electrical gear. Demand for computers rose 0.9%, snapping a five-month decline.

"That's an indication of businesses doing what they would normally do," said Andrew Wilkinson, chief economic strategist at Miller Tabak. "They're beginning to stock up for an improvement.

He sees a sustainable rebound in orders leading to a much stronger performance in 2013, helped by a timely political deal to avert the fiscal cliff.

Cliff Not So Scary October's orders data also suggest fiscal cliff fears may not have been as severe a drag in earlier months, he added. Instead, the eurozone debt crisis could have been a bigger factor, with the European Central Bank's September pledge to buy unlimited amounts of sovereign bonds calming sentiment and unlocking some demand.

It is also in line with more upbeat signs from China, which had been in a relative slump but is seeing better exports, industrial production and consumer spending.

Superstorm Sandy was seen having a limited impact on last month's durable goods orders, though it could show up more in later data. But policy uncertainty may fade as a worry.

"I think a lot of people are not fearful of the fiscal cliff," Wilkinson said.

As businesses see more orders roll in, consumers continue to grow more optimistic. The Conference Board's Consumer Confidence Index climbed to 73.7 in November from 73.1 in October. That's the highest since February 2008.

Assessments of the present situation were little changed, while expectations improved. Feelings on the jobs picture and business conditions also brightened.

Such sentiment has fueled — and has been fueled by — the recent housing recovery. The S&P/Case-Shiller 20-city home price index rose 0.4% in September vs. August, the eighth straight seasonally adjusted increase.

Confident consumers look to boost holiday sales as well.

Chain-store sales for the week ended Nov. 24 rose 3.3% from the prior week on Black Friday promotions, Thanksgiving Day business and online sales, according to the International Council of Shopping Centers. On an annual basis, the week's sales were up 4%, the most since May.