•U.S. Durable-Goods Orders Unexpectedly Fall; New-Home Sales Miss Estimates

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U.S. Economy: Orders for Durable Goods Unexpectedly Decrease
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By Timothy R. Homan and Bob Willis

Sept. 25 (Bloomberg) -- Demand for U.S. durable goods unexpectedly fell in August and sales of new homes rose less than forecast, restraining the pace of the economic recovery.

Orders for goods made to last several years dropped 2.4 percent, the biggest decline since January, the Commerce Department said today in Washington. Consumer sentiment improved, a separate report showed.

Companies have little incentive to invest in new plants and equipment with excess capacity near a record and consumer spending forecast to be subdued. Today’s report confirms the Federal Reserve’s outlook for a “weak” rebound and prompted economists from firms including Morgan Stanley to trim their projections for third-quarter growth.

“The U.S. economy tends to improve in fits and starts when it’s in a recovery, and this one is in its infancy,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Business spending on equipment and software appears to be weaker than we’d hoped in the third quarter.”

Stocks fell as the reports on durable goods and new-home sales tempered the bigger-than-forecast gain in consumer confidence. The Standard & Poor’s 500 Stock Index was down 0.4 percent to 1,046.15 at 12:13 p.m. in New York after rising as much as 0.3 percent earlier in the day.

Economists forecast durable goods orders would increase 0.4 percent, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from a decline of 2 percent to a 4 percent gain. Outside of transportation, bookings were expected to increase 1 percent, according to the Bloomberg survey.

Influence on Growth

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, dropped 0.4 percent after a 1.3 percent decrease the prior month that was more than four times as large as previously estimated.

Shipments of these items, a measure used in calculating gross domestic product, dropped 1.9 percent, the worst performance since April.

Morgan Stanley lowered its forecast for third-quarter growth to 3.2 percent from 3.7 percent after the durable-goods report, according to a note to clients from David Greenlaw, the firm’s chief fixed-income economist.

The government revised July data to show a 4.8 percent gain in total orders, down from a previously estimated 5.1 percent increase. The figures tend to be volatile, so last month’s drop should be viewed in the broader context of gains in prior months, Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said in a note to clients.

Aircraft Orders

Demand for aircraft, which is often volatile, slumped 42 percent in August after surging 98 percent the prior month, according to today’s report.

Boeing Co., the world’s second-biggest airplane maker, said it received orders for 32 planes in August, down from 44 the prior month.

Even so, the Chicago-based company’s 777 model’s backlog has “remained very strong” amid the recession with about four years’ worth of production left even if the company were to keep running at its full rate of seven a month, Larry Loftis, the program’s chief said in an interview this week.

“There’s nothing in the near term that would have us cutting production again,” he said.

More Autos

Automobile orders increased 0.4 percent after a 1.6 percent gain in July.

Carmakers including General Motors Co. and Ford Motor Co. plan to boost output through the second half of the year to rebuild depleted inventories. The government’s $3 billion cash- for-clunkers incentive to trade in gas-guzzlers for more fuel- efficient vehicles lifted auto sales and production last month.

Fed policy makers this week indicated for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep their benchmark interest-rate “exceptionally low” for an “extended period.” They also said they will slow central bank purchases of mortgage debt and extend the program through the first quarter of 2010.

Spending by households, while stabilizing, is still “constrained” by job losses, stagnant wages, and lower home values, policy makers said in their statement. They added that “economic activity is likely to remain weak for a time.”

The Reuters/University of Michigan final index of consumer sentiment increased to 73.5 in September, more than forecast, from 65.7 in August. A preliminary September reading was 70.2.

Home Sales

Sales of new homes climbed 0.7 percent to a 429,000 annual pace last month, a separate Commerce Department report showed, as builders cut prices at a record pace to compete with the foreclosures that are flooding the market for previously owned houses. Sales were forecast to rise to a 440,000 pace, according to a Bloomberg survey.

The median price of a new house fell 9.5 percent from the prior month, the biggest decrease since records began in 1963, as homes selling for less than $150,000 took a bigger share of the market. The median price decreased to $195,200, the lowest level since October 2003.

The Obama administration’s $8,000 tax credit for first- time buyers, which is due to expire at the end of November, combined with lower prices as foreclosures have mounted, have helped lift sales this year. At the same time, record foreclosures have drawn more buyers to existing homes and away from new homes.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Bob Willis in Washington bwillis@bloomberg.net.
Last Updated: September 25, 2009 12:16 EDT