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Durable goods, new home sales surprisingly up

Orders to factories for big-ticket goods and new homes sales both rose unexpectedly in February, but economists said the gains were unlikely to last as the recession persists.
/ Source: The Associated Press

Orders to U.S. factories for big-ticket manufactured goods and new homes sales both rose unexpectedly in February, but economists said the gains were unlikely to last as the recession persists.

The Commerce Department said Wednesday that orders for durable goods — manufactured products expected to last at least three years — increased 3.4 percent last month, much better than the 2 percent fall economists expected. It was the first advance after a record six straight declines and the strongest one-month gain in 14 months.

The department also reported that new home sales rose to a seasonally adjusted annual rate of 337,000 from an upwardly revised January figure of 322,000. The results, while better than the drop to 300,000 units that analysts expected, still were the second-worst on record. Even after the revision to January’s results, the month remained the worst on records dating to 1963.

After initially rising on the better-than-expected government data, Wall Street dipped in afternoon trading. The Dow Jones industrial average, which surged 200 points earlier in the day, slipped about 20 points in afternoon trading and broader indicators also fell.

Last month’s strength in durable goods orders was led by a surge in orders for military aircraft and parts, which shot up 32.4 percent. Demand for machinery, computers and fabricated metal products also rose.

Still, the rebound in both factory orders and new home sales may be temporary. Upticks in retail sales and housing starts last month, along with a private sector group’s index of leading economic indicators dropping less than expected were welcomed, but none were viewed as sustainable given all the problems facing the economy. And a large drop in durable goods orders in January was revised even lower, bolstering estimates that February data represented a blip.

Durable goods

“The worst of the drop in (home) sales is over but a sustained recovery, still less price stability, is a way off still,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.

He was even more skeptical of a rebound in durable goods. Noting the steep downward revisions in January and that half of last month’s gains came from defense, Shepherdson said the rise in orders was welcome, but “much less impressive than it looks at first sight and it cannot possibly last.”

RBS Greenwich Capital analyst David Ader agreed. “Durable goods was firmer than expected but with the caveats of downward revisions and the bounce ... coming on the heels of several months of weakness ... and we don’t see an effort to interpret it as a sign the economic bottom is in,” he wrote in a note.

Manufacturers have been battered by the current recession — already the longest in a quarter-century — as demand for cars, airplanes, household appliances, furniture and other large goods shrinks both in the U.S. and overseas.

The government is scheduled to report Thursday on the overall economy. Economists believe that data will show the economy falling at an annual rate of 6.5 percent in the final three months of last year, even deeper than the 6.2 percent drop in the gross domestic product reported a month ago.

Chart: New homes sales Feb '09

Economists believe the GDP fell just as sharply in the current quarter and likely will keep contracting until the second half of this year.

Still, orders for durable goods excluding the volatile transportation sector rose 3.9 percent last month, easily beating the 2-percent drop that economists expected.

But despite the big surge in demand for military aircraft, overall orders for transportation products fell 0.8 percent in February. Demand for commercial aircraft plunged 28.9 percent after a huge increase in January. Orders for autos and auto parts dipped 0.6 percent as that industry’s struggles persist.

Detroit’s General Motors Corp. and Chrysler LLC are restructuring operations in hopes of securing billions more in federal aid.

In areas of strength, orders for heavy machinery surged 13.5 percent in February, demand for computers rose 10.1 percent and orders for fabricated metal products edged up 1.5 percent.