Economic Outlook: The drop in durable goods could signal trouble for the recovery

Durable goods orders dropped sharply in January, falling well beyond expectations, the Commerce Department said.

January's drop was the steepest decline in durable goods orders in three years. The total of $206.1 billion is below pre-recession figures, giving rise to the question that hit about this time last year: Is the recovery a myth?

The recovery this year looks more impressive. The unemployment rate -- arguably the deepest wound inflicted on the economy by the burst housing bubble -- has dropped impressively from 9.1 percent in September to 8.3 percent in January.

In roughly the same period of 2010-11, the economy also added jobs in big numbers, but the recovery stalled by June. The index, that peaked at 10.2 percent in October 2009, has made uneven progress. The question is, will it stall again?

The second-heaviest -- as in most stubborn -- millstone around the country's neck is the housing market, which, unlike a year ago, is also showing signs of recovery.

The pending home sales index climbed 2 percent in January, the National Association of Realtors said. Their chief economist, Lawrence Yun, said: "Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations."

Sales of new homes dropped in January from December, but were up 3.5 percent above January 2011. Existing home sales also dropped a touch, but the inventory of homes on the market, a closely watched index, dropped from a 6.2 month supply to 6.1 months, an indication prices could stabilize and maybe even rise.

But mostly, sorry to say, the U.S. recovery still holds its own mostly in relation to Europe, where the economic growth is expected to drop into a mild recession this year.

Europe took far too long to pay attention to Greece and is paying a steep price. The International Monetary Fund, meanwhile, predicted the U.S. economy would grow 1.8 percent in 2012. Durable goods orders is where the rubber meets the road. Under a magnifying glass, that's where millions of sidelined workers are failing see any recovery at all.

In international markets Tuesday, the Nikkei 225 index in Japan gained 0.92 percent while the Shanghai composite index in China added 0.2 percent. The Hang Seng index in Hong Kong rose 1.65 percent while the Sensex in India climbed 1.64 percent.

The S&P/ASX 200 in Australia shed 0.11 percent.

In midday trading in Europe, the FTSE 100 index in Britain also lost 0.11 percent while the DAX 30 in Germany was down 0.22 percent. The CAC 40 in France shed 0.17 percent while the Stoxx Europe 600 fell 0.25 percent.