NEW YORK (Reuters) - New orders for U.S.-made durable goods rose a smaller-than-expected 2.5 percent in February and excluding volatile transportation orders were down for the fourth time in the last five months, a government report on Wednesday showed.
The Commerce Department reported that excluding transportation orders, durable goods orders fell by 0.1 percent. Economists polled ahead of the report were expecting overall durable goods orders to advance by 3.5 percent and by 1.6 percent, excluding transportation.
KEY POINTS: - Orders for nondefense capital goods, excluding aircraft, viewed as a proxy for business spending, fell by 1.2 percent last month after declining by 7.4 percent in January. Economists were expecting a 2.3 percent gain.
“It was a miss. The revision was pretty poor. So bonds liked that but they are not really going to do a whole lot with this with Bernanke hanging over our heads. His testimony is going to be the be-all and end-all for today at least.”
CARY LEAHEY, MANAGING DIRECTOR AND ECONOMIST, DECISION ECONOMICS, NEW YORK:
“This is a disappointing report. You see only a 2.5 percent orders rise after a miserable 9.3 percent decline in January. The strong aircraft orders boosted the total and the non-defense capital goods ex-aircraft category, which is about a third of the total and plugs into GDP, declined 1.2 percent after falling 7.4 percent in January.
“This weak report suggests that, at best, equipment spending will be flat relative to the fourth quarter which we know was down from the third quarter. It represents a manufacturing recession, but also just a general sense of corporate caution where business expectations fell through most of 2006 and have only now started to stabilize. This sense of corporate caution, layered over a long-standing housing recession, is the real reason why the Federal Reserve moved the dial toward a neutral monetary policy last week. The Fed is concerned about even greater downside risk should corporations continue to trim capital spending plans and - perhaps of even greater concern - start to pull back on hiring.”
FRANK LESH, FUTURES ANALYST AND BROKER, FUTUREPATH TRADING LLC, CHICAGO:
“We’re about 2-3 points lower on the S&P futures off of that number. It’s a little weaker than expected. Everbody was talking about the whole gain in durable goods coming from aircraft and it was.”
ROBERT LUTTS, CHIEF INVESTMENT OFFICER, CABOT MONEY MANAGEMENT, SALEM, MASSACHUSETTS:
“More slowing and you’d have to say concern about the ability of earnings to continue on a growth track and that’s what the stock market is worried about. This is a very volatile series. This isn’t necessarily the direct impact of housing but the psychological effect of real estate values — the wealth effect in reverse.
“(As for the Fed) it reinforces their last position that housing is having an impact and the economy will continue to moderate and they will lean more toward cutting.”
DAVID WATT, SENIOR CURRENCY STRATEGIST, RBC CAPITAL, TORONTO:
“Quite disappointing, especially given the downward revisions to the January numbers. We would have thought that there would have been a bit of a bounce in the durable orders. Overall they were U.S. dollar bearish numbers and the sentiment is overall right now, despite the overnight volatility, dollar bearish. Going into Bernanke’s speech people are a bit dollar bearish, well intuned to the idea that Bernanke might deviate from script and if he does, he is probably going to make a U.S. dollar bearish comment.”
CHRIS RUPKEY, SENIOR FINANCIAL ECONOMIST, BANK OF TOKYO/MITSUBISHI-UFJ, NEW YORK:
“It looks like orders are declining quite sharply ... This is very weak. It’s persistent two months in a row.
“This is what it looks like when we are going into a recession. I’ll be surprised if we don’t.
“This means about 1-1/2 percent GDP. It’s a disappointing report for the economy and the outlook.”
MARKET REACTION: - U.S. Treasuries rally after surprisingly weak February durable goods data. - Dollar falls after U.S. Feb durable goods orders broadly softer than expected. The euro EUR= rose against the dollar, trading at $1.3360 soon after the report from about $1.3345 shortly prior. The dollar fell against the yen, trading at about 116.92 yen JPY= from about 117.20 yen shortly prior. - U.S. stock futures add to losses after durable goods data. - U.S. rate futures up, boost implied chance of Fed rate cuts on weak durable goods data.