Durables orders up, home sales disappoint

By Glenn Somerville

WASHINGTON (Reuters) - New orders for costly and long-lasting U.S.-made goods rose a surprisingly strong 3.4 percent in March, according to a government report on Wednesday that showed businesses investing to expand operations.

But another report showing weaker-than-expected sales of new homes and big stocks of completed but unsold homes damped hopes for improvement in the slowing U.S. economy, despite the signs of strength in the manufacturing sector.

The pickup in March durable goods orders followed a revised 2.4 percent February gain, a Commerce Department report showed, and handily surpassed Wall Street economists' expectations for a 2.5 percent increase.

Even excluding transportation goods, which account for more than a quarter of overall orders, March orders were up 1.5 percent after declining 0.4 percent in February.

A key component of the monthly report that serves as a proxy for business investment, non-defense capital goods excluding aircraft, posted a 4.7 percent increase in orders last month.

It was the biggest increase since September 2004 when orders rose 7.9 percent and followed declines of 2.3 percent in February and 6.2 percent in January.

ANYTHING HELPS

"This is a helpful sign for the economy," said Kevin Flanagan, a fixed-income strategist for Morgan Stanley's global wealth management unit, based in Purchase, New York. "But it is too early to say whether or not capital expenditures are going to be back on the rebound just based on one month's data."

A mid-morning report from the Commerce Department on March new-home sales reinforced an impression the economy is laboring under a drag from a soft housing sector that may continue for some months.

New single-family home sales rose to an annual rate of 858,000 units from a revised rate of 836,000 in February but fell short of the 888,000 analysts had forecast for March.

Significantly, there were 545,000 new homes for sale in March, slightly more than the 544,000 reported in February, which economists said must be worked down to revive housing.

"It suggests continuing weakness in housing going forward for at least the next few months," said Gary Thayer, chief economists with A.G. Edwards & Sons Inc. in St. Louis, Missouri.

Kevin Logan, economist at Dresdner Kleinwort Wasserstein in New York, said the data showed the spring selling season had gotten off to a poor start. "We've already heard this from a lot of builders, but this confirms it," he said.

Bond prices that had weakened after the durable goods report was issued swiftly recovered after the housing data was published on hopes it kept the possibility of official interest rate cuts alive. Stock prices held on to modest gains at mid-morning.

The new-home sales data came a day after a real estate trade group reported the pace of existing home sales -- which represent 85 percent of the housing market -- slumped 8.4 percent in March, the biggest tumble in more than 18 years.