aj, here is new info that suggests that the Fed stays put in May.
biz.yahoo.com
Tuesday March 26, 3:02 pm Eastern Time
Consumers, Durables Up, Future Uncertain
By Ross Finley
NEW YORK (Reuters) - U.S. consumer confidence surged in March and orders for durable goods held firm in February, evidence the U.S. economy has bolted out of recession, but the two reports on Tuesday raised questions about the strength of recovery later this year.
The Conference Board said its closely watched index of consumer confidence reached its highest level since August, rallying to 110.2 in March. That beat forecasts of a rise to 98.8 and was up from a revised 95.0 in February.
Separately, durable goods rose 1.5 percent to $179.4 billion in February after a downwardly revised 1.3 percent gain in January, the Commerce Department said. The report was stronger than analysts' expectations of a 1.0 percent gain. But excluding transportation, February orders were down 1.3 percent, and excluding defense, they fell by 0.2 percent.
While the reports were positive news for an economy that just six months ago looked headed for a long and deep recession after the Sept. 11 attacks, financial markets scaled back the likelihood the Federal Reserve will raise interest rates at its May meeting to about 50-50 from 80 percent odds a day earlier.
The bulk of the rise in February durables goods orders came from purchases of aircraft and defense capital goods -- not from the more sustainable consumer or business spending.
Economists cautioned that already-strong consumer spending, which makes up two-thirds of the economy, may have little room to accelerate and help boost the economy further. The confidence report showed scant improvement in intentions to buy new cars, washing machines or take long vacations.
``The confidence numbers really provide a lot of support for (Fed Chairman Alan) Greenspan's view that there's no pent-up demand in the economy and therefore we need to look to the business sector,'' said Drew Matus, senior financial economist at Lehman Brothers.
Yet businesses lack the profitability to spend.
``The durable goods orders show that the business sector really isn't in any condition to lead us out of the recession. So you take all those in hand with the Fed comments made earlier today and the Fed's not going anywhere (with interest rates) any time soon,'' Matus said.
Dallas Fed President Robert McTeer said on Tuesday he was ''not in a hurry'' to raise short-term interest rates, and Fed Board Governor Mark Olson said uncertainty about the strength of the recovery was ``considerable.''
U.S. Treasuries rose as investors scaled back odds for a rate hike in May. Stocks also rallied after the confidence report was released, but some of those gains were cut in late afternoon trading.
CONFIDENCE UP
The Conference Board said its Present Situation Index, which measures views of the economy right now, posted its largest one-month gain in 25 years, reaching 111.5 in March, up from 96.4 in February. The Expectations Index, a gauge of consumers' six-month outlook, rallied to 109.3 from 94.0.
Consumer confidence has risen for three of the past four months; a similar gauge of sentiment from the University of Michigan also showed a sharp bounce in mid-March. Analysts track the indexes for clues on future consumer spending.
Conference Board research group director Lynn Franco told Reuters the indexes were now ``at levels associated with good growth going ahead,'' predicting a rise in future consumer spending from already-strong levels.
But the report showed consumers had scaled back their buying plans during the month on automobiles and homes as well as appliances like washing machines and television sets.
``We do not see this report as yet signaling robust economic growth and we still expect the Fed to remain on hold at the next two meetings,'' said John Ryding, chief market economist at Bear Stearns & Co.
Still, the employment outlook brightened in March. The Conference Board said only 20.8 percent of survey respondents reported jobs are ``hard to get,'' down from 22.6 percent in February, leading many to believe that unemployment probably peaked at 5.8 percent in December.
``That kind of supports our contention that the unemployment rate has peaked for this cycle -- and that's really the primary driver of consumer spending,'' said Chris Rupkey, senior economist at Bank of Tokyo-Mitsubishi.
AIRCRAFT AND DEFENSE ORDERS WAY UP
February's durable goods data showed a third consecutive overall increase in orders and the fourth climb in the last five months. But that overall climb in orders came mostly from a 41 percent increase aircraft orders and a 78.6 percent surge in defense capital goods.
The report showed declines in several sectors, including an 8.9 percent slide in semiconductor orders, a 5.9 percent drop in autos, and a 3.1 percent fall in computers. Communications equipment orders rose 0.9 percent, and machinery orders were unchanged. |
