Durable Goods, Home Sales Data Disappoint
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By Tim Ahmann
WASHINGTON (Reuters) - New orders for long-lasting U.S. manufactured goods were unchanged in December and new home sales fell as a strong quarter for economic growth closed on a soft note, two reports showed on Wednesday.
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The Commerce Department (news - web sites) said orders for durable goods -- items like refrigerators and cars meant to last three years or more -- were flat in December after falling a revised 2.3 percent the previous month.
Analysts had been expecting a solid increase of 2.0 percent and the data raised questions about the strength of the manufacturing recovery that had been evident in other reports.
"It's disappointing coming off a huge decline in November. I was expecting a bit of a rebound," said Mark Zandi, chief economist at Economy.com in West Chester, Pennsylvania.
Separately, the department said sales of new U.S. homes dropped 5.1 percent to a seasonally adjusted 1.060 million unit annual rate as the strongest year ever for home sales ended with a whimper.
While the December sales rate was the slowest since April, the report was not entirely bleak as overall activity remained high and sales rates for October and November were ratcheted higher.
Analysts polled by Reuters had expected sales to increase to a 1.100 million unit pace from the originally reported 1.082 million November sales rate.
The reports came only hours before officials at the Federal Reserve (news - web sites) announced a decision at the end of a two-day meeting to hold overnight interest rates at a 1958 low of 1 percent to allow the economy to gather strength.
While the Fed had been expected to leave rates on hold, it surprised financial markets by dropping a pledge to keep rates low for "a considerable period," instead expressing willingness to be "patient" in mulling when rates should be nudged higher.
Stocks, which outside of home builder shares had largely shrugged off the economic news, sold off after the Fed's announcement, with the Dow Jones industrial average closing down over 140 points at 10,468.
Prices for U.S. Treasury securities, which had been underpinned by the data early in the day, also took a sharp turn for the worse on the words from the Fed.
BROAD WEAKNESS
The durable goods report, which provides a key reading on the health of the manufacturing sector, showed weakness across a broad range of products.
Orders for non-defense capital goods excluding aircraft -- seen as a proxy for future business spending -- fell 0.4 percent. Economists believe a sustained pickup in business spending is crucial for a long-lasting economic recovery.
Orders of computers and electronic products, which dropped 2.7 percent, and orders for fabricated metal goods, which slipped 0.8 percent, were other weak spots.
In contrast, demand for transportation equipment rose 1.4 percent amid stronger orders for cars and aircraft. Aircraft giant Boeing said it had 21 new orders in December.
While December orders were soft, 2003 proved a turning point for the hard-hit factory sector. For the year as a whole, durable goods orders rose 2.8 percent, the first calendar-year increase since a 3.3 percent rise in 2000.
TOPPING IT OFF
The housing report showed single-family home sales gained 11.5 percent last year, with a record 1.085 million homes sold as the lowest mortgage rates in a generation fueled buying.
Some analysts think the housing market, which has been a key pillar of strength since the economy sank into recession in early 2001, won't be able to march much higher.
"The contribution to growth from that sector is ebbing," said Kathleen Stephansen, an economist at Credit Suisse First Boston in New York.
However, mortgage rates this month have dipped to levels not seen since July, which should offer some support.
With sales slowing last month, the inventory of unsold homes on the market rose to 374,000, the highest level since June 1989. At December's sales pace, that represented a 4.3 months' supply, the largest since February and a sharp step up from November's 4.0 reading.
The report on new home sales stood in contrast to a report earlier this week that showed a sharp jump in sales of existing homes last month. The National Association of Realtors said on Monday existing home sales rose 6.9 percent in December to an annual rate of 6.47 million units. |
