Durable goods orders hold, home sales slip

WASHINGTON (Reuters) - U.S. durable goods orders held steady last month, but sales of new single-family homes fell, government data showed on Wednesday, highlighting a weak economy as the Federal Reserve kept interest rates unchanged.

New orders for long-lasting U.S. manufactured goods were unchanged in May after two straight months of decline, the Commerce Department said, while a key barometer of business confidence fell less than expected.

A separate Commerce Department report showed new sales of single-family homes declining 2.5 percent in May from the month before and by over 40 percent from May 2007.

The data was released in the middle of a two-day Fed policy meeting. The central bank held its benchmark overnight rate at 2 percent while leaving a strong impression the next move would be up, by emphasizing mounting inflation risks over the receding threat to growth.

Analysts had forecast orders for durable goods like cars and washing machines to creep up 0.1 percent after a 1 percent drop in April as weak U.S. growth chilled factory activity.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 0.8 percent in May. This was somewhat less than analyst forecasts for a 1.4 percent drop and followed a 3.1 percent rise in April.

The U.S. economy has been hit by weakness in the housing market, which has hurt confidence and employment, but manufacturers have found some support from exports.

"The details of the report suggest that there is some underlying strength in areas like computers, electronics and electrical equipment," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri.

"That's an indication that, outside of housing, other parts of the economy are doing better," he said.

Orders for computers and electronic products rose 2 percent while orders for electrical equipment were up 1.5 percent, the Commerce Department said.

But stripping out transportation, durable goods orders fell 0.9 percent in May, weaker than the 0.8 percent dip expected by analysts and compared with a 1.9 percent rise in April.

Overall shipments of durable goods shrank 1.1 percent after rising 1.8 percent in April.

"Shipments were down and that tends to be bad news for second-quarter GDP (gross domestic product). Most of the problems are in transportation because no one is buying cars," said David Wyss, chief economist at Standard & Poor's Ratings Services in New York.

Orders for motor vehicle and parts fell 3.3 percent.

U.S. officials expect the U.S. economy to pick up slightly in the second half of this year, but no real acceleration in growth is anticipated until the housing market has hit bottom. Such evidence remains scant.

HOME SALES SLIP

U.S. sales of newly constructed single-family homes fell 2.5 percent in May to an annual rate of 512,000 units and were down more than 40 percent from a year ago, the Commerce Department said.

Economists polled by Reuters were expecting new home sales to slow to a seasonally adjusted 510,000 rate last month from 525,000 in April, revised down from 526,000 reported before.

The inventory of new homes available for sale in May dropped 1.7 percent to 453,000 -- the 13th consecutive monthly decline. The May sales pace put the supply of homes available for sale at 10.9 months' worth, the Commerce Department said.

The Commerce Department separately said it had revised May building permit data to show a 0.4 percent decline compared with a steeper 1.3 percent fall previously reported.

A separate report on Wednesday showed U.S. mortgage applications hit their lowest in nearly 6-1/2 years last week despite a sharp drop in interest rates.

The Mortgage Bankers Association said its index of mortgage applications dropped 9.3 percent last week.

The report was the latest sign to suggest the housing market had yet to reach bottom. Demand for loans to purchase a home fell 7.4 percent and refinancing applications plunged 12.1 percent.

(Additional reporting by Julie Haviv in New York, Ellen Frielich and Richard Leong in New York; Editing by Neil Stempleman)