April 24, 2013 / 1:11 PM / in 5 years

WRAPUP 3-Weak durable goods orders point to sluggish U.S. economy

* Durable goods orders drop 5.7 percent in March
    * Orders ex-transportation fall 1.4 percent
    * Gauge of business spending plans edges up 0.2 percent
    * Broadly weak reports latest sign of slowing economy

    By Lucia Mutikani
    WASHINGTON, April 24 (Reuters) - Orders for long-lasting
U.S. manufactured goods recorded their biggest drop in seven
months in March and a gauge of planned business spending rose
only modestly, the latest signs of a slowdown in economic
    Durable goods orders slumped 5.7 percent as demand fell
almost across the board, the Commerce Department said on
Wednesday. The drop in orders for these goods - items from
toasters to aircraft that are meant to last three years or more
- followed a 4.3 percent rise in February.
    "We have seen a considerable loss of momentum in the economy
and that has been obvious in the round of data we had over the
last four weeks or so," said Jacob Oubina, a senior U.S.
economist at RBC Capital Markets in New York.
    The drop, which was double what economists had expected,
provided a fresh indication of cooling at factories that had
played a central role in the economy's recovery from recession.
    It also joined a range of other data covering items from
employment to retail sales that have shown the economy lost a
step at the end of the first quarter.
    The slowdown, which economists have dubbed the spring swoon,
has been largely blamed on belt-tightening in Washington as the
government tries to slash its bloated budget deficit.
    Uncertainty over the impact of deep government spending
cuts, known as the sequester, could be making businesses more
cautious about rolling out capital projects.
    Last month, non-defense capital goods orders excluding
aircraft, a closely watched proxy for business spending plans,
edged up 0.2 percent. Orders for these so-called core capital
goods had dropped 4.8 percent in February and economists had
expected a 0.4 percent increase last month.
    "There's clearly rising near-term caution in capital
spending plans by businesses as fiscal tightening hits and
global growth slows," said Ted Wieseman, an economist at Morgan
Stanley in New York.  
    Financial data firm Markit said on Tuesday its preliminary
factory purchasing managers' index hit a six-month low in April,
and other regional factory surveys have also exhibited weakness
this month.
    Against the backdrop of a tame inflation environment, the
soft durable goods data strengthened the argument for the
Federal Reserve to maintain its monetary stimulus. The U.S.
central bank meets next week and is widely expected to keep
purchasing bonds at a pace of $85 billion a month.
    U.S. Treasury debt prices squeezed higher, while stocks on
Wall Street were little changed after the data. The dollar
weakened against the yen.
    Shipments of core capital goods - which the government uses
to calculate equipment and software spending in its gross
domestic product report - rose 0.3 percent in March. However,
shipments for February were revised to show a 1.2 percent rise
rather than the previously reported 1.9 percent increase.
    That suggests growth in business spending in the first
quarter slowed sharply from the fourth quarter's 11.8 percent
annual pace. Indeed, some economists lowered their January-March
gross domestic product estimates.
    JPMorgan cut its first-quarter GDP forecast by two-tenths of
a percentage point to 2.9 percent, while Barclays said there was
a downside risk to its 3.0 percent estimate.
    The government's report on GDP on Friday is expected to show
the economy grew at a 3.0 percent annual rate in the first
quarter, according to a Reuters survey, rebounding from a paltry
0.4 percent gain in the final three months of 2012. 
    Economists, however, look for expansion of only around 1.5
percent or so in the April-June period. Even that forecast is a
bit optimistic, some have warned.
    "The recent weak tone of the data, along with the
anticipated fiscal drag, poses clear challenges," said Michael
Feroli, an economist at JPMorgan in New York.
    "Nonetheless, we believe the fall in energy prices and the
apparent resiliency of housing should provide important ballast
to prevent the economy from capsizing."
    A second report on Wednesday underscored the firming housing
market tone. Applications for loans to purchase homes rose for a
second straight week last week as mortgage rates declined
    While the fall in durable goods orders last month was led by
a 15 percent plunge in demand for transportation equipment, 
other segments of the report, including primary metals and
electrical equipment, were also weak.
    There were gains only in orders for motor vehicles and
computers and electronic products. Unfilled orders fell, showing
declining backlogs at the nation's factories.
    The absence of an overhang of unsold goods was a hopeful
sign as factories will be able to ramp up production once orders
pick up. However, economists said any boost to production was
unlikely to come in the second quarter.
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