WASHINGTON New orders for long-lasting manufactured goods rose unexpectedly in September on rebounding demand for aircraft and autos, but analysts said the underlying trend showed the U.S. economy remained in serious trouble.
Orders for durable goods, or items intended to last three years or more, rose 0.8 percent, the Commerce Department said on Wednesday.
The department also said it now estimates durable goods orders declined 5.5 percent in August, rather than its previous estimate of a 4.8 percent drop. It pegged year-to-date orders 1.8 percent below the same period last year.
While the September orders topped economists' expectations for a 1.2 percent drop, they highlighted signs of falling business investment as indication that the underlying economy remains weak and will likely worsen.
The data showed the economy's "last gasp before the financial turmoil, and the last gasp looks pretty shaky ... It looks like inventories are going to jump and production will surely be reduced," said Pierre Ellis, senior global economist with Decision Economics.
Stocks were higher at midday on expectations that U.S. Federal Reserve would slash interest rates on Wednesday for the second time this month to shore up the economy, as well as reassuring news about merger talks between carmakers General Motors (GM.N) and Chrysler.
U.S. Treasury debt prices were also higher on expectations of a hefty interest rate cut.
Orders for non-defense capital goods excluding aircraft, seen as a barometer of business spending plans, fell 1.4 percent after decreasing 2.2 percent in August.
"This reinforces the idea that companies are cutting business investment because of tight credit conditions and prospects of lower revenues," said Anna Piretti, senior economist at BNP Paribas in New York. "We are going to see more weakness to come."
The Commerce Department reports third-quarter gross domestic product on Thursday, and Piretti said "we do expect a negative GDP reading in the third quarter. We expect a reduction in structural and industrial spending."
Morgan Stanley Research, in a note to investors, said it now believes U.S. economic output fell 0.4 percent in the third quarter, a slight improvement from its earlier forecast of a 0.6 percent drop.
But due in part to the negative outlook for business investment, "at this early point we see Q4 growth on track for a decline near 3.5 percent," Morgan Stanley said.
Orders in the huge transportation sector rose 6.3 percent in September, helping lift overall durable goods.
That included a 3 percent gain for autos and auto parts, the biggest jump since July 2007.
"But with unit sales falling to their slowest speed in more than 16 years, this won't last," said Sherry Cooper, chief economist at BM0 Capital Markets.
Year-to-date, orders were off 17.5 percent as automakers struggle with slumping demand and financial woes that have led GM into merger talks with Chrysler, which is mostly owned by Cerberus Capital Management CBS.UL.
Orders for civilian aircraft jumped 29.7 percent, following a 37.7 percent drop in August. That most likely reflected industry players bracing for Boeing Co (BA.N) production delays because of a strike by its workers, Cooper said.
The planemaker reached a deal with its biggest union on Monday to end the longest strike at its plants in 13 years.
Orders for defense capital goods increased 19.6 percent in September, the largest since December 2007, after increasing 8.4 percent in August. About one-quarter of the September gain came from new orders for aircraft and parts.
(Additional reporting by Richard Leong in New York; Editing by Tom Hals)