WRAPUP 2-Weak U.S. durable goods data dims growth outlook

Mon Aug 26, 2013 12:06pm EDT

* Durable goods orders fall 7.3 percent in July
    * Orders excluding transportation slip 0.6 percent
    * Business spending plans gauge drops 3.3 percent

    By Lucia Mutikani
    WASHINGTON, Aug 26 (Reuters) - Orders for long-lasting U.S.
manufactured goods recorded their biggest drop in nearly a year
in July and a gauge of planned business spending on capital
goods also tumbled, casting a shadow over the economy early in
the third quarter.
    The report on Monday added to other data for July on
industrial production, housing starts and new home sales that
have suggested economic growth this quarter will probably not
accelerate as much as economists had hoped.
    "So far, things aren't looking that great," said Millan
Mulraine, senior macro strategist at TD Securities in New York.
"We are expecting a bounce in growth, it can still come, but it
may not necessarily be in the first month of the quarter."  
    The Commerce Department said durable goods orders dropped
7.3 percent as demand for items ranging from aircraft to
computers and defense equipment fell. 
    It was the biggest decline since last August and snapped
three consecutive months of gains. 
    Orders for durable goods - items from toasters to aircraft
that are meant to last three years or more - had increased 3.9
percent in June. Economists had expected orders to fall 4.0
percent last month.
    Non-defense capital goods orders excluding aircraft, a
closely watched proxy for business spending plans, fell 3.3
percent, breaking four straight months of gains. It was the
biggest drop since February. 
    Orders for these so-called core capital goods increased 1.3
percent in June. Economists had expected this category to rise
0.5 percent in July.
    The decline in demand suggested the manufacturing sector,
which hit a speed bump early in the year, will probably not
bounce back as quickly as many economists had anticipated.
    The report was at odds with a survey from the Institute for
Supply Management released earlier this month that showed new
orders at their highest level in more than two years in July. 
    Still, it was the latest sign that economic growth might not
accelerate much from the second quarter's 1.7 percent annual
pace. Industrial output was flat in July, while residential
construction increased less than expected and new home sales
tumbled last month.
    
 
    
    SHIPMENTS FALL   
    Troublingly, the durable goods report showed that shipments
of core capital goods, which are used to calculate equipment and
software spending in the government's measure of gross domestic
product, fell 1.5 percent in July. 
    Shipments had dropped 0.8 percent in June. While shipments
tend to decline in July because not all components in this
category are seasonally adjusted, economists noted the drop last
month was the largest since 2008. 
    Forecasting firm Macroeconomic Advisers lowered its
third-quarter GDP growth estimate by two tenths of a percentage
point  to a 1.8 percent rate. Barclays cut its GDP growth
forecast to a 1.9 percent rate from 2.1 percent.
    Economists said while the drop in core capital goods orders
could attract the attention of some Federal Reserve officials,
it was unlikely the U.S. central bank would step away from a
plan to start reducing its monthly bond purchases before the end
of the year.
    Some blamed the weak July data on a recent spike in interest
rates in anticipation of a reduction in the Fed's bond buying,
which many think will come at its next meeting on Sept. 17-18.
    "When looking for signs that interest rate increases are too
much for the economy to handle, durable goods, like housing, are
a leading indicator of weakness in the broader economy," said
Chris Low, chief economist at FTN Financial in New York.
    "We expect the Fed is determined to start reducing the size
of asset purchases regardless, in part because the market has
already begun to reverse some of the recent rate pressure
without the Fed's help."
    U.S. Treasury debt prices rose on the data, pushing yields
lower, while the dollar fell against the yen. U.S. stocks were
up marginally.
    Durable goods orders in July were held down by a 19.4
percent plunge in bookings for transportation equipment. That
reflected a 52.3 percent drop in orders for civilian aircraft.
    Boeing received orders for 90 aircraft in July, down from
287 aircraft the prior month, according to information posted on
its website. Orders for motor vehicles gained 0.5 percent after
rising 0.2 percent the prior month.
    Even excluding transportation, demand for long-lasting
manufactured goods was weak almost across the board. 
    There were declines in orders for computers and electronic
products, and demand for electrical equipment, appliances and
components also fell. Orders for machinery and primary metals
were flat. 
    Orders for defense capital goods plummeted 21.7 percent in
July after hefty gains in the prior months.
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