Disappointing Economic Data Signal Bumpy Recovery

A reminder that the path to an economic recovery will be a slow and bumpy one emerged Friday from weaker-than-expected data on durable goods orders and new home sales.

FILE - In this April 30, 2009 file photo, the first Boeing 787 plane that will fly, already decked...

FILE - In this April 30, 2009 file photo, the first Boeing 787 plane that will fly, already decked out in the Boeing blue and white livery, sits in a paint hanger at the plant in Everett, Wash. The Commerce Department said Friday, Sept. 25, 2009, orders for goods expected to last at least three years fell unexpectedly in August due mainly to a drop in demand for commercial aircraft.(AP Photo/Elaine Thompson, file)

(AP)

The reports "are a wake up call for anyone expecting a smooth transition to a strong economic recovery," said Paul Ashworth, senior U.S. economist for Capital Economics.

The durable goods figure caused some economists to lower their forecasts for third-quarter economic growth. Still, the volatility isn't unexpected as the economy struggles to arise from the worst recession since the 1930s.

"No one said this would be a smooth recovery," Benjamin Reitzes, an economist at BMO Capital

The reports also reflect the uncertainty that lies ahead as some government stimulus efforts wind down.

Even as the housing sector is recovering, for example, a tax credit for first-time buyers that's helped boost sales is set to expire Nov. 30. There's a bipartisan push on Capitol Hill to extend the credit, but prospects for the real estate market remain hazy.

Similarly, while the manufacturing sector has made gains, they're partly due to the Cash for Clunkers program that supplied buyer rebates but that ended last month.

And the banking system has managed to stabilize mainly because of extraordinary aid from the Federal Reserve and the Treasury, which are starting to rein in some of that financial support.

"The pilot is saying, fasten your seat belts, we're going to hit some turbulence," said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

That message was reinforced by a Fed board member who warned Friday that the central bank can't wait for the economy to return to normal before raising interest rates again to fend off inflation.

And once it does start to boost rates, the Fed may need to act with "greater swiftness than is modern central bank custom," Fed member Kevin Warsh said in a speech in Chicago.