Durable goods demand shows economy strengthening

WASHINGTON Wed Oct 26, 2011 1:34pm EDT

A woman shops for refrigerators at a store in New York July 28, 2010. REUTERS/Shannon Stapleton

A woman shops for refrigerators at a store in New York July 28, 2010.

Credit: Reuters/Shannon Stapleton

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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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Comments (3)
jscott418 wrote:
I never read much into this figure unless it stays positive month after month. Its trending a little more positive. But not everywhere and things like auto sales which are up one month are way down the next. Considering how we have been sluggish for so long. I would expect a real upturn will be more significant as pent up demand keeps increasing. I do not see that.

Oct 26, 2011 10:02am EDT  --  Report as abuse
twofive0 wrote:
Can you really call them “durable goods” anymore? Is it just me or has the overall quality of these “durable” goods decreased substantially (particularly since the recession)? I have a feeling that “planned obsolescence” has been kicked into overdrive. It could have an effect on these numbers.

Oct 26, 2011 1:35pm EDT  --  Report as abuse
The double-dip worries were a bit overdone,
but slow growth is likely for some time to come.
Home sales increased but prices were down,
while transportation orders fell closer to ground.
Demand for big-tickets seems alive and well,
but civilian aircraft bookings took the red-eye to Hell.

Oct 26, 2011 7:31pm EDT  --  Report as abuse
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