Plunge in durable goods orders clouds US outlook 04/25 09:06 AM * Durable goods orders tumble 4.2 percent in March
* Orders ex-transportation fall 1.1 percent
* Gauge of business spending plans dips 0.8 pct
* Broadly weak report points to loss of factory momentum
By Lucia Mutikani
WASHINGTON, April 25 (Reuters) - Demand for long-lasting U.S. manufactured goods tumbled by the most in three years in March and businesses cut back on spending plans, suggesting the economy slowed as the first quarter drew to a close.
Durable goods orders dropped 4.2 percent, the largest decline since January 2009 when the economy was nose-diving, Commerce Department data showed on Wednesday. Economists had expected a drop of just 1.7 percent.
February orders were revised to show only a 1.9 percent increase instead of the previously reported 2.4 percent rise.
"This adds to the evidence that momentum in the economy sort of fell flat in March," said Ellen Zentner, a senior U.S. economist at Nomura Securities in New York.
Data on durable goods, items ranging from toasters to aircraft that are meant to last three years or more, is notoriously volatile and investors on Wall Street ignored the report. Stock prices rose, cheered by forecast-beating results from Apple. Prices for U.S. Treasury debt fell, while the dollar was marginally weaker against a basket of currencies.
The data, which was the latest to show the factory sector losing a step in March, came as officials at the Federal Reserve met for a second day to deliberate on monetary policy, and it reinforced the U.S. central bank's views of moderate growth.
The Fed is not expected to make any policy changes. It will outline its views on the economy in a statement around 12:30 p.m. (1630 GMT) and release new projections for the economy and interest rates at 2 p.m. (1800 GMT).
Even though the U.S. recovery likely slowed a bit in the first quarter, economists believe the outlook would have to deteriorate significantly for the Fed to ease policy further through a third round of bond purchases or quantitative easing.
"If we were sitting here before the June meeting and we see a string of similar reports, I think it tips the Fed's hand closer to QE3," said John Canally, an economist at LP Financial in Boston.
MANUFACTURING LOSING SPARK
Data last week showed industrial production was flat in March for a second straight month, while some gauges of regional factory activity weakened in April.
In addition to weakness in factory gauges, U.S. jobs growth slowed sharply last month and consumer confidence ebbed.
But there was a silver lining in the durable goods report.
Although non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 0.8 percent in March, the prior month's figure was revised up to show a 2.8 percent gain from a 1.7 percent increase.
In addition, shipments of non-defense, non-aircraft capital goods orders, which go into the calculation of gross domestic product, rose 2.6 percent after increasing 1.4 percent in February.
This suggests that growth in business capital spending rose in the first quarter and will support economic growth.
A report on Friday is expected to show that U.S. GDP grew at a 2.5 percent annual rate in the first quarter, according to the median of a Reuters poll, after expanding at a 3 percent pace in the fourth quarter.
The drop in orders for durable goods and an expected rise in inventories in the first quarter could set the economy up for a soft patch heading into the middle of the year.
"Unexpected weakness in core orders in March suggests less growth of equipment and software spending in the second quarter, and more first-quarter inventory investment suggests a larger decline in inventory investment in the second quarter," said Ben Herzon, an economist at Macroeconomic Advisers in St. Louis.
Orders for durable goods last month were dragged down by a 12.5 percent plunge in bookings for transportation equipment - the most since November 2010 - as aircraft orders tumbled. Boeing received only 53 orders for aircraft, according to the plane maker's website, down from 237 in February.
Orders for motor vehicles barely rose last month. Excluding transportation, orders fell 1.1 percent after a 1.9 percent rise in February. (Editing by Andrea Ricci) |
