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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (12250)	9/24/2004 11:55:38 PM
From: Pogeu Mahone	Respond to of 116555

U.S. Economy Seen on Solid Footing By REUTERS Published: September 24, 2004 Filed at 5:46 p.m. ET WASHINGTON (Reuters) - Orders for U.S. durable goods fell unexpectedly in August but beat forecasts once transportation equipment was stripped out, government data showed on Friday in evidence the economy is again pumping strongly. The Commerce Department said orders for big-ticket items meant to last at least three years fell 0.5 percent after gaining 1.8 percent in July. Orders excluding transportation rose a solid 2.3 percent. Financial markets were initially unsettled by the data. However, economists said stronger shipments of capital equipment point to faster third-quarter growth following a soft spot in the previous three months. This supported the dollar, which dipped sharply on the news but ended broadly unchanged against the euro over the session. In a separate release, U.S. existing home sales data showed an unexpectedly steep decline of 2.7 percent to 6.54 million units. But housing sector activity remains near record highs. Wall Street analysts polled by Reuters had forecast orders would stay flat overall and rise 1.0 percent excluding the volatile transportation component that includes aircraft. They were reasonably upbeat after the report. ``On balance, despite the decline by durable goods orders in August, a 2.3 percent jump excluding transportation suggests that the U.S. economy is not slumping and that manufacturing's upward trend continues,'' said John Lonski, chief economist at Moody's Investors Service. Orders for civilian aircraft fell 42.8 percent after soaring 103.6 percent the previous month. But outside of the aircraft industry, demand was pretty strong. Computer and electronic product orders were up 4.1 percent after slumping 4.3 percent in July while motor vehicle orders increased by 5.7 percent. Taken as a whole, the data shores up confidence the United States will see stronger economic growth in the third quarter. But there was enough contradictory information to keep markets on their toes and U.S. 10-year Treasury bond prices initially fell before recovering to end Friday close to overnight levels for a yield of 4.03 percent. MIXED NEWS Nondefensive capital goods excluding aircraft, seen as a proxy for business spending, fell 0.5 percent and this news was blamed for the early wobble in financial markets. When aircraft orders are included, capital goods orders outside the defense sector fell 7.4 percent after gaining 9.3 percent the previous month. It was the biggest drop since September 2002's 12.3 percent decline. ``If one strips out the volatility from defense and transportation, there's a discernible softening of capital goods spending. That reflects business investment. It's a development that bears watching,'' Richard DeKaser, chief economist at National City Corp. But the U.S. manufacturing sector has been gathering steam after a 2001 recession and others were more comfortable with the numbers. They noted that shipments of nondefensive capital goods excluding aircraft, used by economists as a gauge of current equipment investment, rose 0.5 percent after gaining 2.3 percent the previous month. ``A look behind the numbers indicates that equipment investment is quite strong and will be a significant contributor to third quarter real GDP growth,'' Bank of America economist Gary Bigg told clients in a note. Morgan Stanley economists said they were raising estimates for third quarter growth to 4.2 percent from a previous 3.9 percent on the basis of larger than expected gains in capital goods shipments and inventories. Confidence in the expansion has given the Federal Reserve scope to end a long stretch of very low interest rates. The U.S. central bank raised rates three times this year, with the latest hike coming on Tuesday when it upped the fed funds target rate by a quarter percentage point to 1.75 percent. But some economists are still cautious on the outlook and think the Fed will stop tightening policy later this year to ensure America keeps growing.