Durable goods orders hold, home sales slip

By Alister Bull

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.