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Durable orders post biggest slump in 6 months

New orders for long-lasting U.S. manufactured goods fell more than expected in April to record their largest decline in six months.
/ Source: Reuters

New orders for long-lasting U.S. manufactured goods recorded their largest decline in six months in April as aircraft and motor vehicle bookings tumbled, indicating the economy remained stuck in a soft patch.

The Commerce Department said on Wednesday durable goods orders dropped 3.6 percent, worse than economists' expectations for a 2.2 percent fall. March's orders were revised up to a 4.4 percent rise from a 4.1 percent increase.

While durable goods orders are extremely volatile, details of the report pointed to some cooling in factory activity. It was also the latest in a series to suggest that the loss of growth momentum encountered as the year started persisted into the early part of the second quarter.

"It's not an ideal way to start off the second quarter. It is clear, not only from this report but from others, that the U.S. economy is encountering its fair share of speed bumps," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

The weak durable goods report could prompt economists to lower their forecasts for second-quarter growth.

So far, data ranging from retail sales to industrial production have been generally lackluster.

The government is expected to report on Thursday that the economy grew at a still sluggish 2.1 percent annual rate in the first quarter, according to a Reuters survey, rather than the 1.8 percent pace it estimated last month.

House prices

Stocks on Wall Street opened lower on the data, while government bond prices edged up. The dollar rose against a basket of currencies.

The economy's sluggish tone was underscored by a separate report showing a decline in home prices in March. The Federal Housing Finance Agency's home price index fell 0.3 percent in March from February. It declined 5.8 percent from a year-ago.

Treasury Secretary Timothy Geithner said recovery in the housing market had a long way to go.

"We've got several more years to go. Again just realistically I think it's going to take time still to heal that," Geithner told Politico in a live interview.

Manufacturing activity, which has led the recovery, has been dampened somewhat by a shortage of motor vehicle parts following an earthquake in Japan.

Orders last month were pulled down by a 4.5 percent fall in motor vehicle bookings, the largest decline since August, likely tracking an 8.9 percent dive in auto production during that month.

U.S. manufacturing contracted for the first time in 10 months in April as a result of supply chain disruptions in the wake of the March earthquake.

Orders were also weighed down by a 30 percent plunge in volatile aircraft bookings. Boeing took in just two aircraft orders, sharply down from the 98 it received in March, according to information posted on the plane maker's website.

Excluding transportation, durable goods orders unexpectedly fell 1.5 percent after a revised 2.5 percent rise in March, previously reported as a 2.3 percent increase. Economists had expected this category to rise 0.5 percent.

The report showed weakness across the board, with big declines in orders for machinery, capital goods, defense aircraft, electronic equipment and computers. However, orders for computers and electronic products rose.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 2.6 percent last month after an upwardly revised 5.4 percent increase in March.

"The April level is about where it was in the first quarter so it suggests that firms' capital spending inclinations are pretty flat or sluggish in the second quarter," said Cary Leahey, a senior economist at Decision Economics in New York.

Economists had expected a 0.2 percent gain from a previously reported 4.3 percent rise.

Shipments of non-defense capital goods orders excluding aircraft, which go into the calculation of gross domestic product, fell 1.7 percent.