Weak orders for durable goods and a soft advance in new home sales have contributed to a lackluster performance in equity markets today. While a boost to consumer sentiment was able to help  stocks recovery from a disappointing open, the gains were temporary.

As of 1:00pm, all three indexes appeared to be ending the week on a low note. The NASDAQ is down 0.94% to 2,087, followed by a 0.82% decline in the S&P 500 to 1,042 and a 0.58% slide in the Dow to 9,652.

 

The main driver of today’s weakness was August’s 2.4% decline in orders for durable goods. Analysts were looking for orders to increase in the month, but a 30% drop in aircraft orders caused the index to break a four-month trend.

 

“Business equipment spending is still on track to post a solid gain in the third quarter, but perhaps not quite as robust as earlier thought,” said Brian Bethune at IHS Global Insight. 

Bethune said the economy was gaining momentum but that the expiry of fiscal and monetary assistance could put some bumps in the road. “Headwinds to the outlook for business equipment spending included tight credit conditions ― which is a major negative for small business spending and hiring – and high levels of uncertainty about the outlook and operating environment for 2010,” he added.

News was better at 10:00. Revisions to the University of Michigan's consumer sentiment index were better than expected, putting the score up another 3 points to 73.5, the highest level since January 2008. 

“Consumers reported that the economy had already begun to improve and anticipated further gains in the year ahead,” the report said.

Less positive but still in the right direction was the New Home Sales index. It climbed 0.7% in the month to mark the fifth straight advance, but markets had been expecting a larger climb and equities fell in the minutes afterwards.

When combining it with the decline of existing home sales, as seen yesterday, the data suggests “the recent positive momentum in the U.S. housing market may be slowing,” said Millan Mulraine, economics strategist at TD Securities.

No more data is scheduled for the rest of the day, but investors will be watching for headlines at 1:15, when Fed governor Kevin Warsh delivers the keynote address to the Chicago Federal Reserve Bank's International Banking Conference in Chicago. 

In the Wall Street Journal this morning, Warsh argued that the central bank still has a critical role to play in creating a sustainable recovery.

“Economic histories in the U.S. and elsewhere are packed with examples in which the monetary authorities, with the overwhelming benefit of hindsight, may have misjudged the communication, timing or force of their exit strategies,” he wrote. 

Warsh said it would be pre-mature to call the Fed’s actions a success of failure, as the job is only half done.

He added, “If policy is not implemented with skill and force and some sense of proportionality, the success of the overall endeavor could suffer.”