Durable Goods Orders Surge 4.9 Percent

By CHRISTOPHER S. RUGABER

posted: 90 DAYS 20 HOURS AGO

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WASHINGTON (Aug. 26) - Orders for durable goods rose last month by the largest amount in two years, as the manufacturing sector rebounded from the depths of the recession.

The Commerce Department said Wednesday that orders for goods expected to last at least three years increased 4.9 percent in July, the third rise in the past four months. Analysts expected a 3 percent increase. Orders for June were revised up to a 1.3 percent drop, from a 2.2 percent decline.

The better-than-expected durable goods data followed positive readings Tuesday about consumer sentiment and home prices. A report on new homes sales due out later Wednesday morning may provide more good news if it shows a fourth straight increase in July as expected.

Orders for transportation equipment, which rose 18.4 percent, drove the overall increase in durable goods. Commercial aircraft orders, a volatile category, more than doubled after falling 30 percent in June. Motor vehicle orders increased 0.9 percent.

Excluding transportation goods, orders rose 0.8 percent. That was the third straight increase, but just below analysts' expectations of a 0.9 percent rise.

Orders for non-defense capital goods excluding aircraft, a key measure of business investment, dropped 0.3 percent. Some economists expected that category to fall after rising in May and June.

Economists at Barclays Capital said before the report that orders for Boeing Co. aircraft rose in July to their highest level since last August.

Auto production improved last month as General Motors and Chrysler reopened many plants that were shut in May and June while the companies restructured and emerged from bankruptcy protection. The industry also benefited from the government's Cash for Clunkers program, which spurred thousands of people to trade in older vehicles for new cars.

Ford Motor Co. earlier this month said its sales rose 2.4 percent in July from the same month last year, its first year-over-year increase since November 2007. Chrysler Group LLC posted a smaller year-over-year sales drop compared with recent months, helped by clunkers deals. GM's sales fell 19.4 percent, a slower pace than earlier this year.

Tuesday's consumer and housing reports, along with President Barack Obama's reappointment of Ben Bernanke as Federal Reserve chief, sent the financial markets modestly higher. But economists warned that consumer confidence remains far below levels associated with a healthy economy and might not lead to the increased spending critical for a broad recovery.

The New York-based Conference Board said its Consumer Confidence index rose to 54.1, from an upwardly revised 47.4 in July. That reading reversed two months of decline and beat analysts' expectations. Economists closely monitor confidence because consumer spending accounts for about 70 percent of U.S. economic activity.

Consumer sentiment, fueled by signs the economy is stabilizing, has recovered a bit since hitting a record-low of 25.3 in February. A reading of 90 indicates the economy is on solid footing; anything above 100 signals strong growth.

Consumers' expectations for the economy over the next six months rose to 73.5 from 63.4 in July, the highest level since December 2007, when the recession began.

On the housing front, the Standard & Poor's/Case-Shiller's U.S. National Home Price Index rose 1.4 percent in the second quarter from the January-March period, the first quarterly increase in three years. Home prices, though still down nearly 15 percent from last year, are at levels last seen in early 2003.

Many analysts expect the economy to grow 2-3 percent in the current July-September quarter, spurred by a more stable housing market and the clunkers program.

But economists worry that without healthier consumer spending, the recovery may weaken next year. Jobs also are a weak spot and could limit future consumer spending if Americans remain concerned about layoffs or declining wages.

Obama economic adviser Christina Romer predicted Tuesday that unemployment could reach 10 percent this year and average 9.8 percent next year. That's up from its current level of 9.4 percent.

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2009-08-26 08:57:58