The reports included separate data on factory orders and pending home sales for November, as well as the Institute of Supply Management report on the non-manufacturing index for December – giving investors fresh insight into the depth of the current recession.

Despite the overall negative tone of the reports, some analysts maintain the worst may be over.

“While the economic headlines remain grim, stocks are holding higher in quiet trading because a lot of the bad news was already discounted when the stock market crashed in 2008,” Frederic Ruffy, options strategist, at WhatsTrading.com told MarketWatch.

Factory Orders Fall Biggest Since 1992

Data from the manufacturing sector confirmed that the recession accelerated in November. Orders placed with U.S. factories fell twice as much as forecast, signaling businesses are cutting back on investments, Bloomberg reported.

Factory demand fell 4.6% after a revised 6% decrease in October that was more than previously reported, the Commerce Department said yesterday (Tuesday) in Washington. The back-to-back decline was the biggest since records began in 1992.

“Consumer-durable spending is way down as credit is more difficult to get,” Douglas Smith, chief economist for the Americas at Standard Chartered Bank in New York, said in an interview with Bloomberg Television. “With weakness overseas, you’re also seeing fewer orders for U.S. manufactured goods.”

Tight Credit Hammers Home Resales

A key housing indicator added to the economic malaise as pending home re-sales fell 4% to 82.3 in November, the lowest level since the index began in 2001. The index was down from a revised 85.7 in October, the National Association of Realtors said.

The latest drop supports most analysts’ views that further softening could be in store for the U.S. housing market as credit markets continue to seize up and unemployment skyrockets.

“The housing stress just doesn’t end,” Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, told Bloomberg. Economists had expected November pending sales to fall 1% after an originally reported drop of 0.7% in the prior month.

Meanwhile homebuilders are hanging on by a thread. Lennar Corp. (LEN), a U.S. home building company with operations in 14 states, reported its seventh straight quarterly loss on Dec. 18.

“We’re in the midst of a downward spiral and the momentum is building,” Chief Executive Officer Stuart Miller said on a conference call with analysts.

Service Sector Gives Hope

Meanwhile, the service sector provided the market with a glimmer of hope as the non-manufacturing index contracted in December at a slower rate than had been feared.

The ISM service sector index rose to 40.6% in December from a record low of 37.3% in November. Economists polled by MarketWatch had projected a figure of 37% for December. Still, a reading below 50% indicates that more firms are contracting than expanding.

In December, only one industry reported growth: Retail trade. Among the 17 industries reporting contractions: Wholesale trade; professional, scientific and technical services; and transportation and warehousing.

But surveyed managers said they were still worried about a falloff in their business, budget cuts and jobs. As global demand slows and access to credit continues to tighten, companies are likely to further curtail spending.

The U.S. economy contracted at a 0.5% annual rate in the third quarter, the Commerce Department said Dec. 23. The economy probably shrank at a 4.3% annual rate in the last three months of 2008, the biggest contraction since 1982, according to the median estimate of economists surveyed last month by Bloomberg.

The barrage of negative data may put pressure on Congress to move quickly on President-elect Barack Obama’s economic stimulus plan. Obama has proposed an economic stimulus package costing as much as $850 billion, with emphasis on infrastructure projects and tax cuts. The incoming administration hopes the package will provide a boost to consumer spending and stabilize the economy.

Source: Stock Market Gyrates as Reports Show Economy Deep in Recession