(Adds details, new analyst comments, updates markets)
* Durable goods orders rise 2.2 percent in February
* Report shows strong demand for transportation goods
* Core capital goods demand falls, but shipments up
* Services sector expands in March
By Lucia Mutikani
WASHINGTON, March 26 Orders for long-lasting
U.S. manufactured goods rebounded in February, but a surprise
drop in a gauge of planned spending on capital goods pointed to
sluggish economic growth this quarter.
The Commerce Department said on Wednesday orders for durable
goods increased 2.2 percent, ending two straight months of
declines. Durable goods are items like toasters and aircraft
that are meant to last three years or more.
However, orders for non-defense capital goods excluding
aircraft unexpectedly fell 1.3 percent after rising 0.8 percent
in January. This core capital goods measure is a closely watched
proxy for business spending plans.
"First-quarter business investment looks to be soft, and it
challenges some of the optimism surrounding the idea that
capital expenditures were set to advance noticeably in 2014 from
their 2013 pace," said Omair Sharif, senior economist at RBS in
Economic growth in the first quarter is expected to have
slowed from the fourth quarter's annualized 2.4 percent rate,
with the expansion held back by unseasonably cold weather and an
effort by businesses to work through a pile of unsold goods.
Some economists trimmed their forecasts of first quarter
business investment on the orders data, but held their overall
GDP forecasts steady, given an increase of 0.8 percent in
durable goods inventories in February.
A separate report showed the services industry grew solidly
in March, adding to data such as industrial production, retail
sales and employment in suggesting the economy was starting to
pull out of its weather-induced soft patch.
Financial data firm Markit said its "flash" services sector
Purchasing Managers Index rose to 55.5 in March from 53.3 in
February. A reading above 50 indicates expansion.
The mixed reports helped to lift the dollar against a basket
of currencies. Stocks on Wall Street pushed higher and U.S.
Treasury debt prices rose marginally.
Shipments of core capital goods rose 0.5 percent last month.
Shipments of these goods are used to calculate equipment
spending in the government's gross domestic product measure.
They had declined 1.4 percent in January.
"The improvement in core capital goods shipments suggests
that this sector of the economy could provide a modest boost to
economic activity this quarter," said Millan Mulraine, deputy
chief economist at TD Securities in New York.
The durable goods report showed overall shipments increased
0.9 percent in February, after two straight months of declines.
Unfilled orders also increased after being flat in January.
Last month, orders for transportation equipment increased
6.9 percent as bookings for automobiles recorded their largest
gain in a year. Transportation orders had declined 6.2 percent
Stripping out the increase in transportation orders, durable
goods demand would have risen just 0.2 percent in February.
There were also increases in orders for primary metals,
fabricated metal products and computers and electronic products.
Orders for machinery fell for a second straight month as did
bookings for electrical equipment, appliances and components.
(Reporting by Lucia Mutikani; Additional reporting by Richard
Leong and Rodrigo Campos in New York; Editing by Paul Simao)