U.S. durable goods edge higher, fiscal uncertainty weighs

WASHINGTON Wed Sep 25, 2013 11:47am 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

WASHINGTON (Reuters) - Orders for long-lasting U.S. manufactured goods barely grew in August in a possible sign that companies are holding back on investments due to uncertainty over government spending.

Other data on Wednesday showed sales of new U.S. homes last month were near their lowest level of the year, a sign that a rise in interest rates was weighing on the economy.

Durable goods orders rose 0.1 percent during the month, driven by the strongest rise in vehicle orders since February, Commerce Department data showed.

The data also showed shipments of non-military capital goods other than aircraft grew 1.3 percent during the month, snapping two straight months of declines.

The reading for these so-called "core" shipments feeds directly into the government's estimates for total economic growth and the increase supports the view that government austerity has so far taken only a modest bite from national output. But concerns are growing.

"Companies are still cautious in their capex (capital expenditure) due to the uncertain economic scenario," said Annalisa Piazza, an analyst at Newedge Strategy.

The data, which cover everything from toasters to tanks, had little impact on sentiment on Wall Street, where eyes have grown more focused on debates in the U.S. Congress over government spending and the national debt. Stock index futures were little changed.

The U.S. economy grew at a respectable 2.5 percent annual rate in the second quarter but many economists expect the pace will slow in the third.

Worries over the path of fiscal policy have been growing, and new orders for core durable goods, which are viewed as a gauge of business spending plans, rose just 1.5 percent in August.

That was below economists' expectations and not enough to make up for the 3.3 percent decline registered in July.

"Third-quarter growth in equipment investment will be pretty weak, but the fourth quarter should be notably better," said Paul Ashworth, an economist at Capital Economics in Toronto.

Economists polled by Reuters had expected overall goods orders to be flat. Excluding transportation, new orders fell 0.1 percent.

HOUSING LOSES STEAM

Congress is currently racing to reach a deal that would avoid a shutdown of most government offices after this month, when budgets are due to expire. Lawmakers must also raise the government's legal limit on borrowing in the coming weeks to avoid a default on the government's obligations, which could deliver a big blow to the economy.

Concerns over these debates helped lead the Federal Reserve to keep in place a massive bond-buying program this month. The Fed had been signaling it would reduce monthly purchases this year, which has led to a surge in interest rates since May.

That surge is taking steam out of the U.S. housing recovery.

Sales of new single-family homes in America rose 7.9 percent in August to an annual rate of 421,000 units, the Commerce Department said. The pace of sales was still close to its lowest level this year and the gain did not make up for a steep drop registered in July.

The housing market, which has been a major drag on America's economy since the 2007-09 recession, appeared to turn a corner early last year when overall home prices started rising.

Prices for new homes have been declining since May, however. Last month, the median price for a new home sale fell to $254,600. The median price data is not adjusted for seasonal swings and is still up slightly from August 2012.

The Fed's decision to hold off winding down its stimulus program may have contributed to a slight fall in mortgage rates last week, which led applications for U.S. home loans to rise, data from the Mortgage Bankers Association showed.

(Reporting by Jason Lange; Editing by Krista Hughes)

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