Durable goods demand shows economy strengthening

Reuters

By Lucia Mutikani

Other data on Wednesday also pointed to a strengthening in economic activity, with new homes sales in September the strongest in five months and mortgage applications rising last week.

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The Commerce Department said durable goods orders excluding transportation rose 1.7 percent after falling by a revised 0.4 percent in August. Economists had expected only a 0.4 percent increase after a previously reported 0.1 percent dip.

But a drop in demand for transportation equipment as bookings for motor vehicles and civilian aircraft declined pulled down overall orders by 0.8 percent.

Economists, who look past the swings in the transportation component to gauge underlying demand, said the report bolstered the view that the economy was gaining some strength.

"Demand for big ticket items seems to be alive and well," said John Ryding, chief economist at RDQ Economics in New York.

"Outside of the volatile transportation sector, the gains in durable goods orders were broad-based and point to a manufacturing sector that continues to expand at a solid rate."

In a second report, the Commerce Department said new home sales increased 5.7 percent to a seasonally adjusted 313,000-unit annual rate.

However, the median price for a new home fell 3.1 percent to $204,400 last month, the lowest since October 2010, indicating the housing market was far from recovering. Prices were down 10.4 percent from a year earlier.

Applications for U.S. home mortgages rose last week as demand for both purchases and refinancing perked up, the Mortgage Bankers Association said in separate report.

The data helped to lift stocks on Wall Street, while prices for Treasury debt fell. The dollar was down versus the euro.

TRANSPORTATION FALLS

Transportation orders fell 7.5 percent, the largest decline since April.

Orders for motor vehicles and parts fell 2.7 percent, while civilian aircraft bookings tumbled 25.5 percent. Boeing received only 59 aircraft orders, according to the plane maker's website, down from 127 in August.

The tenor of the durable goods report was further strengthened by a 2.4 percent jump in non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending.

That was the largest increase since March and offset a downward revision to August's increase.

"The details of the durable goods report were quite constructive, pointing to building momentum in business capital investment going forward," said Millan Mulraine, senior macro strategist at TD Securities in New York.

Shipments of non-defense capital goods excluding aircraft, however, fell 0.9 percent after rising 3.1 percent in August.

Still, the report was more evidence that economic activity picked up in the third quarter after a weak first half.

U.S. gross domestic product grew at an annual pace of 2.5 percent in July through September period, according to the median of a Reuters poll. That would mark a sharp step-up from the 1.3 percent logged in the second quarter.

Although manufacturing has slowed in recent months, the September durable goods report pointed to underlying resilience.

Details of the report, outside transportation were fairly upbeat, with orders for machinery, primary metals, electrical equipment and computers and electronic products rising solidly.

Unfilled orders increased 0.8 percent last month and inventories barely rose, indicating factories will remain busy for a while.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

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