Durable goods demand shows economy strengthening (Reuters)

WASHINGTON (Reuters) – The economy appears to be heading into the fourth quarter with solid momentum with demand for a range of long-lasting U.S.-made goods rising at the fastest pace in six months in September and businesses stepping up spending plans.

Other data on Wednesday also underscored the economy's improved tone, with new homes sales in September the strongest in five months and mortgage applications rising last week.

"The worries about a double-dip recession were a bit overdone, but slow growth is likely to be with us for some time to come," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Orders for durable goods, excluding transportation items, rose a stronger-than-expected 1.7 percent last month after falling 0.4 percent in August, a Commerce Department report showed. The gain was the largest since March.

At the same time, non-defense capital goods orders excluding aircraft -- a closely watched proxy for business spending -- jumped 2.4 percent, which was also the biggest rise in six months.

"Most businesses feel a little bit better about the economy than consumers do right now," said Vitner. "That means investment spending and economic growth are likely to hold up reasonably well."

While shipments of non-aircraft, non-defense capital goods fell, economists said that did not materially change their expectations for a pick-up in growth in the third quarter.

The government is expected to report on Thursday that GDP grew at an annual pace of 2.5 percent in the July through September period, according to the median of a Reuters poll. That would mark a sharp acceleration from the 1.3 percent logged in the second quarter.

NEW HOME SALES RISE

In a second report, the Commerce Department said new home sales increased 5.7 percent to a seasonally adjusted 313,000-unit annual rate.

But the median price for a new home fell 3.1 percent to $204,400 last month, the lowest since October 2010, indicating the market was far from recovering. Prices were down 10.4 percent from a year earlier.

"While the housing market still has a pulse it will not be back on its feet until there is significant job growth," said Mitchell Hochberg, Principal, Madden Real Estate Ventures in New York.

Applications for U.S. home mortgages rose last week as demand for both purchases and refinancing perked up, the Mortgage Bankers Association said in separate report.

U.S. financial markets were little moved by the data ahead of a meeting of European leaders to tackle the region's debt crisis. Stocks on Wall Street were mostly up, while prices for Treasury debt fell. The dollar rose against a basket of currencies.

TRANSPORTATION FALLS

Though demand for transportation equipment fell last month, reflecting weak autos and civilian aircraft, gains in new orders for durable goods -- items meant to last three years or more -- were broad-based.

Economist said this should continue to aid manufacturing, a sector that has been the pillar of support for the recovery despite a 0.8 percent drop in overall orders.

"Demand for big-ticket items seems to be alive and well," said John Ryding, chief economist at RDQ Economics in New York.

Transportation orders fell 7.5 percent, the largest decline since April. Orders for motor vehicles and parts fell 2.7 percent, while civilian aircraft bookings tumbled 25.5 percent.

Orders for machinery, primary metals, electrical equipment and computers and electronic products all rose solidly.

(Editing by Andrea Ricci)

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Response to 'credible threat' shows how much has changed since 9/11 (The Christian Science Monitor)

On Thursday, federal and New York City authorities disclosed that the U.S. had received specific and credible but uncorroborated intelligence indicating three individuals may have entered the U.S. as part of a possible plot to attack Washington or New York on the tenth anniversary of the September 11, 2001 attacks.

Nothing may come of the threat, but national, state, and local law enforcement agencies are taking no chances.

In New York, police are paying particular attention to bridges and tunnels, checking vehicles. Armed transit police and National Guard troops are patrolling Penn Station. Unattended cars parked suspiciously in Washington are being towed, and police there are working 12-hour shifts.

IN PICTURES: American Jihadis

The reason authorities are paying such close attention to the most recent threat may not be because of newly gathered intelligence alone, but rather from a steady string of lower-level attack threats in the US since 9/11, plotted by individuals and small groups inspired by Al Qaeda.

Al Qaeda’s capabilities may have been degraded in the years since 2001, says Amy Zegart, professor of public policy at UCLA's School of Public Affairs and a senior fellow at Stanford's Hoover Institution. But the group once led by Osama bin Laden has since “morphed into a more complicated, decentralized and elusive threat” including affiliates or franchise groups operating in places like Yemen and Somali and “homegrown terrorists inspired by violent extremism, often through the Internet in the comfort of their own living rooms,” she writes this week in a Los Angeles Times column.

“Plots by homegrowns and franchise groups have risen dramatically in recent years,” she writes, pointing to the Ft. Hood shootings, the Christmas Day “underwear” bomber, the plot to explode printer cartridges on cargo planes, and the Times Square bomb plot.

There have been other attacks and attempted attacks as well: the Somalia-born teen who plotted to explode a bomb in the Portland, Ore., Pioneer Courthouse Square just as families had gathered for a Christmas tree lighting; the shooting of two US military recruiters in Little Rock, Ark.; the arrest of Army Private 1st Class Naser Abdo with guns and explosives near Fort Hood, Texas, last July; the arrest a month earlier of two men – US citizens who had converted to Islam – who tried to acquire machine guns in order to attack the Military Entrance Processing Station just south of Seattle.

From September 11, 2001 to May 2009, US authorities reportedly uncovered 21 plots, and in the past two years they have made arrests in connection with at least 33 more.

In a report for the Bipartisan Policy Center last September, national security experts Peter Bergen and Bruce Hoffman called 2009 a “watershed year in terrorist attacks and plots in the United States” with a total of 11 jihadist attacks, plots, or efforts by Americans to travel overseas to receive terrorist training. That year, at least 43 Americans or residents aligned with Sunni militant groups were charged or convicted of terrorism crimes.

What’s more, Bergen and Hoffman reported, would-be jihadists were not necessarily poor, uneducated, or without opportunity, as many had assumed after 9/11. Nor did they fit any particular ethnic profile. Of the 57 individuals charged or convicted between January 2009 and when their report was made in September 2010, more were Caucasian-Americans, than were Arab-Americans. (The largest portion – 31 percent – were Somali-Americans.)

At a recent Monitor-sponsored press breakfast, Homeland Security Secretary Janet Napolitano said, “Categorically the country is safer now that it was prior to 9/11.”

a€?We have many layers of security in place that didna€?t exist before, beginning with intelligence gathering and information sharing,a€

But like virtually every expert on national security and domestic terrorism, Ms. Napolitano says the toughest problem remains the single individual or small group who may not have the ability to carry out mass attacks but who could slip through intelligence nets and do considerable damage.

"It is much more difficult to defeat a lone actor for all the reasons you would suspect,” she told Atlantic national correspondent and Bloomberg columnist Jeffrey Goldberg this week (before the latest credible threat). “They usually use simpler tradecraft, they're not conspiring with people, there's nothing to intercept, a lot of times they act on almost a sporadic basis, so it's very hard to predict,”

"The growth of homegrown violent extremism within the United States, individuals and small cells, is something that I've seen expand in my tenure as secretary,” she said. “Protecting the American people from this is one of the most difficult problems we have."

Although attempts at domestic terrorism in the United States may have been on the rise in recent years, the ability to intercept would-be terrorists has increased as well a€“ often through the use of informants.

Senior counterterrorism officials said Friday that authorities have a general sense of who is behind the most recent plot involving a car bomb and who may be tasked to carry it out, but they don't have exact identities yet, according to the AP. They said there is at least one US citizen among the three people.

IN PICTURES: American Jihadis

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Data shows softening in economy, no recession (Reuters)

NEW YORK (Reuters) – The pace of U.S. private sector job growth slowed in August for the second month in a row, but factory activity in the Chicago area continued to expand, suggesting the economy would dodge a recession.

Private employers added 91,000 positions this month, payrolls processor ADP National Employment said on Wednesday, broadly in line with expectations.

Separately, the Institute for Supply Management-Chicago said its business barometer fell to 56.5 in August, the lowest since November 2009, from 58.8 the month before.

Still, it was better than economists' forecasts for a reading of 53.5, and suggested that factory activity might not be slowing as fast as had been flagged by other regional manufacturing surveys.

Orders for manufactured goods increased 2.4 percent in July after a 0.4 percent fall in June, the Commerce Department said in a third report.

"For those of us who don't believe the economy is in a free fall, we have got some support, said David Resler, chief economist at Nomura Securities International in New York.

"It is consistent with the belief ... that manufacturing activity is advancing, but it is advancing unevenly across regions."

But the Institute for Supply Management's index of national manufacturing activity probably fell to 48.5 in August, according to a Reuters survey, from 50.9 in July. A reading below 50 indicates a contraction in manufacturing.

The August ISM survey will be published on Thursday.

Major U.S. stock indexes added to gains after the factory data, while U.S. government debt prices fell. The dollar rose against the yen and the euro.

The ADP figures come ahead of the U.S. government's much more comprehensive labor market report on Friday, which includes both public and private sector employment.

While the ADP report has a poor track record of predicting the national nonfarm employment count, it suggested that businesses had not responded to the sharp stock market sell-off and loss of both business and consumer confidence this month by holding back on hiring.

Nonfarm payrolls are expected to have increased 75,000, according to a Reuters survey, slowing from July's 117,000 rise. The anticipated slowdown in payrolls growth will largely be the result of a strike at Verizon Communications.

"The non-farm payrolls figure is still likely to be a bit weaker because it will be affected by the strike by 45,000 Verizon workers last month," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

"The ADP survey counts people as employed as long as they were on the payroll, whereas the official payroll survey only counts people as employed if they were paid during their normal pay period that includes the 12th of the month."

While fears the economy is falling back into recession have increased this month, some of the recent data has been consistent with a slow-growth scenario rather than a contraction.

Slower than expected economic growth has fueled speculation the Federal Reserve could launch another round of bond buying -- known as quantitative easing -- but such a move would likely face political opposition both domestically and abroad.

A separate report earlier on Wednesday showed the number of planned layoffs at U.S. firms declined in August after rising for three months in a row, but the cuts were still up sharply from a year ago amid government job losses.

Employers announced 51,114 planned job cuts, down 23 percent from 66,414 in July, according to the report from consultants Challenger, Gray & Christmas, Inc. July's figure had been a 16-month high.

The Mortgage Bankers Association said on Wednesday applications for U.S. home mortgages tumbled last week as demand for refinancing sagged for the second week in a row.

(Reporting by Leah Schnurr and Lucia Mutikani)

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GOP shows flexibility, Obama aims for higher cuts (AP)

By JIM KUHNHENN and ANDREW TAYLOR, Associated Press Jim Kuhnhenn And Andrew Taylor, Associated Press – 13?mins?ago

WASHINGTON – Republicans showed new signs of flexibility to break a budget impasse Wednesday, but the White House raised the ante — pushing for more deficit reduction and taking a pugnacious tone casting the GOP as defenders of corporate tax giveaways.

The repositioning by both sides appeared to open new compromise possibilities a day before President Barack Obama was set to host the bipartisan congressional leadership for new talks on the budget. The secret negotiations were gaining new urgency because they are tied to an Aug. 2 deadline to raise the government's borrowing authority.

First, House Majority Leader Eric Cantor, R-Va., declared he was open to closing tax loopholes that the White House says are wasteful and ineffective and that would generate some money toward reducing deficits over the long term.

Democratic officials, in turn, said President Barack Obama wants far more deficit reduction than the $2 trillion over 10 years that for weeks has been the target for budget negotiators. Obama in April proposed deficit reduction of $4 trillion over 12 years and White House spokesman Jay Carney said Wednesday that goal remained "something to aspire to."

But even as White House officials expressed confidence that negotiations ultimately would succeed, Obama took a combative approach ahead of Thursday's meeting.

"The debt ceiling should not be something that is used as a gun against the heads of the American people to extract tax breaks for corporate jet owners or oil and gas companies that are making billions of dollars," Obama said during a town hall that featured questions posed through the online social network Twitter.

The president was referring to existing tax benefits that allow corporate jets to depreciate faster than commercial jets and to tax subsidies available to energy corporations. Obama has proposed ending both as part of an effort to reduce deficits with new tax revenue.

Obama's remarks — one of his harshest of the budget debate — sounded especially dissonant coming less than two hours after Cantor had indicated Republicans were amenable to some discussions about taxes.

"If the president wants to talk loopholes, we'll be glad to talk loopholes," Cantor said. He added that any revenues raised from closing such loopholes "should be coupled with offsetting tax cuts somewhere else."

Cantor's comments reflected important, if nuanced, flexibility by Republicans. His earlier position was that closing loopholes should wait for a comprehensive overhaul of the tax code.

In the Senate, Republican leader Mitch McConnell appeared to douse the idea. "To sort of cherry pick items in the context of this current negotiation at the White house strikes me as pretty challenging," he said.

But Republican Sen. John McCain voiced support for ending corporate tax breaks as well as ethanol and agricultural subsidies in exchange for lower rates for businesses.

"The distorting effect of subsidies is clearly evident in the energy sector," McCain said. "We should eliminate these subsides, lower the corporate tax rate, and allow the marketplace to pick winners and losers, not the government."

It is unclear, however, whether Congress and the administration could undertake such an overhaul in the limited time available to negotiate a deal.

Obama in the past has called for a "revenue neutral" revamping of corporate taxes, meaning that the changes would not result in new money for the government. But Obama's calls for curtailing oil and tax subsidies and ending some tax-friendly inventory accounting practices, proposed as part of the budget talks, are designed to raise new tax revenue, not lower corporate rates.

Until now, the talks have centered on reducing the deficit over 10 years by roughly the same amount it would take to raise the debt ceiling over two years — a formula initially proposed by House Speaker John Boehner, R-Ohio. That would mean about $2.4 trillion in deficit reduction.

Democratic officials familiar with the budget talks said Obama believes it would be easier to win bipartisan support in the House and Senate for a deal that embraces a larger number, closer to the $4 trillion over 12 years that he proposed in April.

The officials, speaking on the condition of anonymity because of the delicacy of the talks, said the precise number was still in flux, but said Obama would be making the case for more, rather than less deficit reduction, in his discussions with congressional leaders on Thursday.

In taking new public stances, Republicans and the White House also were reacting to political circumstances. The Wall Street Journal, whose opinion pages are generally friendly to Republicans, published an editorial Wednesday that the tax breaks targeted by Obama "will be hard for Republicans to defend."

Republicans, on the other hand, had taken the lead in demanding higher deficit reduction, a stance that was proving popular with the public. By calling for an even bigger number, the White House appeared to be seeking to neutralize that advantage.

"The president believes, we believe, that there are enough members of both parties in both houses who support the idea that a big deal has to be balanced and therefore include spending cuts in the tax code," Carney said.

The assertion reinforced and expanded on Obama's comments Tuesday that back-channel talks with congressional leaders last weekend made progress in advance of Thursday's talks. But Carney cautioned that no final deal should be expected.

Obama, in his Twitter town hall Wednesday, pushed aside a question over whether he would use the 14th Amendment to raise the debt ceiling by executive order, a suggestion floated by some Democrats.

The amendment states: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

Obama said: "I don't think we should even get to the constitutional issue. Congress has a responsibility to make sure we pay our bills. We've always paid them in the past. The notion that the United States would default on its debt is just irresponsible."

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Intelligence shift shows change in Afghan war aims (AP)

By KIMBERLY DOZIER, AP Intelligence Writer Kimberly Dozier, Ap Intelligence Writer – 2?hrs?30?mins?ago

WASHINGTON – Military intelligence officers were scrambling a year ago to collect and analyze the social, economic and tribal ins and outs of each valley and hamlet in Afghanistan.

This information wasn't the kind of secret or covert material many military intelligence specialists were used to. But it was seen as crucial to helping commanders tell the good guys from the bad, learn what Afghans really needed from their government and undermine the Taliban-led insurgency by winning hearts and minds over time.

Since last fall, top intelligence leaders in Afghanistan shifted their focus back to targeting the enemy in the more traditional way, by mapping their networks and analyzing what made the Taliban tick.

They didn't stop collecting the other information. But their goal now was helping tell commanders what they needed to know to kill insurgents and drive the enemy to the negotiating table.

President Barack Obama said Wednesday that the United States will start bringing home U.S. troops next month. His announcement is part of a gradual scaling back of American operations and ambitions in Afghanistan that's expected to emphasize raids over governance, making tracking Afghan culture and bolstering the government less important, three current officials in Afghanistan said.

The White House has been frustrated by Afghanistan's corruption and the inability of President Hamid Karzai's government to provide competent officials to serve far-flung provinces. That has helped shrink U.S. goals, and the new bottom line is a government strong enough to prevent terrorists' safe havens from returning.

Targeting insurgent leaders and their support networks is seen as an important part of the U.S. exit strategy. The thinking is that Taliban leaders will be more ready for a deal if they feel threatened personally.

The U.S. has confirmed preliminary outreach to the Taliban, but Secretary of State Hillary Rodham Clinton said last week that fruitful talks probably are a long way off.

These developments come as the man in charge of military intelligence in Afghanistan, Maj. Gen. Steve Fogarty, has shifted his focus to how the U.S. gathers social, economic and tribal data, and how troops are getting access to it.

But he may now face a closing window of opportunity to bolster those programs, with the looming drawdown of manpower and resources as ordered by an administration fed up with the war's $10 billion-a-month cost.

A secret U.S. National Intelligence Estimate on Afghanistan issued in February said raids and small-scale special-operations-led stability operations were showing progress, but projects meant to bolster Afghan governance were not yet taking hold, according to the officials. They spoke on condition of anonymity to discuss intelligence matters.

That assessment was one factor in Obama's decision to withdraw all but a small contingent of the current approximately 100,000 forces by 2015, said a senior U.S. official, speaking on condition of anonymity to discuss sensitive strategic discussions.

In early 2010, now-retired Gen. Stanley McChrystal's mission was to keep the population safe, in addition to the traditional hunt-the-enemy role. That meant understanding enough about a town or village to know whether the insurgency was best combated by killing a key leader, giving out loans to build a factory and provide jobs, or in many cases both, according to a senior intelligence official in Afghanistan.

The drawbacks of focusing solely on the enemy were laid out in a paper published by then-senior intelligence officer in Afghanistan, Maj. Gen. Michael Flynn. He called his work "Fixing Intel" and he bypassed traditional Pentagon channels to get it published by a Washington think tank.

After publication, Flynn put in place new layers of collection and analysis that included the Stability Operations Information Centers, whose staff members function like news reporters. They travel to field locations to collect intelligence that others didn't have time to share with the rest of the NATO-led effort.

Analysts also gathered "atmospherics." They asked Afghans what the man on the street was talking about, trying to get a sense of everything from sentiment about Karzai to whether they believed NATO troops were staying beyond 2014.

Flynn also championed the Human Terrain System, which uses anthropologists to study village and social networks throughout Afghanistan.

Most important, intelligence officials say, was his move to build district-by-district assessments to provide an encyclopedia of information readily available to the troops in the field.

Flynn left last fall. His successor, Fogarty, reorganized those three components — the information centers, atmospherics, and human terrain — into one location, at a base outside NATO headquarters.

That move was seen by some who had helped Flynn establish those operations as a rejection of the need for social, civil and tribal intelligence. They also pointed to a turnover in leadership at some of the stability centers and the dismantling of one center in eastern Afghanistan.

Two senior intelligence officials involved in the reorganization say it was simply a response to Gen. David Petraeus' priorities, when he took over from now-retired Gen. Stanley McChrystal.

Knowing the White House clock was running out, Petraeus knew he had limited time to show his troops had weakened the Taliban.

The top U.S. commander did try to send the message that social intelligence was important in tracking enemy networks, and he asked officers to count things such as the number of cellphone towers in an area, as a measure of success equal to the number of insurgents killed, the official said.

But some military intelligence teams in the field still interpreted the change in leadership from Flynn to Fogarty and the reorganization of some of Flynn's top projects as a shift back to what they had studied in school: targeting the enemy over protecting the population.

In parts of Afghanistan, they embraced the shift wholeheartedly, two U.S. officials say.

For instance, Kandahar's military intelligence center merges social and cultural data, satellite weather data and information gleaned from special operations raids. But the focus on the enemy is reflected in the souvenir coins the center hands out. Beneath the traditional counterinsurgency slogan, "Winning hearts and minds," is a picture of an armed insurgent, with a rifle-sight superimposed on him.

"People are still comfortable with what they know," said Douglas Ollivant, a senior fellow at the New America Foundation, who just returned from a year serving as the senior counterinsurgency adviser in eastern Afghanistan.

"There's a level of synchronization between unmanned aerial vehicles, aircraft, and forces on the ground when it comes to targeting the enemy that simply isn't there, when we talk either about knowing which key leaders to talk to, or aid is needed and where," he said.

That doesn't mean leaders don't want or need the more detailed information, Ollivant said, "just that they haven't yet perfected the best way to get it."

Flynn remains influential. He was just promoted to the three-star rank and appointed to a high position advising the director for national intelligence. One of Flynn's co-authors, Marine Corps Capt. Matt Pottinger, says his paper "Fixing Intel" is all but required reading at military intelligence courses.

For those who think Fogarty's focus excludes social intelligence, a senior intelligence official points out that he set up his own version of human terrain analysis of Afghanistan two years ago, when he was Petraeus' intelligence officer at U.S. Central Command in Tampa.

In Fogarty's previous time in Afghanistan, he didn't have the staff to gather the kind of data Flynn advocated because the bulk of the resources were going to Iraq, according to a senior official in Afghanistan, speaking on condition of anonymity to discuss intelligence.

With Petraeus on the way to being confirmed as CIA director, 33,000 U.S. troops headed from Afghanistan over the next 12 months, and a new focus on pounding the Taliban into peace talks, he may be facing that fight for resources all over again.

___

Dozier reported from Washington and Kabul, Afghanistan.

___

Online:

Flynn's paper: http://tinyurl.com/y8ckrrr

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