Demand for aircraft boosts durable-goods orders; sales of new homes increase

By Martin Crutsinger and Alan Zibel
Thursday, October 28, 2010

A surge in demand for commercial aircraft lifted orders for big-ticket manufactured goods in September, but businesses spent less on products that would signal expansion.

The Commerce Department said Wednesday that orders for durable goods rose 3.3 percent last month. Overall, it was the best showing since January. But excluding transportation, orders fell 0.8 percent after having risen 1.9 percent in August.

And spending by companies on capital goods excluding aircraft dropped 0.6 percent after rising 4.8 percent in August. The category, which is viewed as a good proxy for business investment in the economy, has declined in two of the past three months.

The new report suggests manufacturing is moving forward but at a slower pace than earlier this year.

Factories helped boost the economy after the recession ended, filling orders from businesses that moved to rebuild their stockpiles after slashing them during the downturn. That trend has since slowed.

"These figures suggest that the industrial recovery is nearing extinction. Without it, the overall economy is going to struggle," Paul Dales, U.S. economist at Capital Economics, wrote in a research note.

The biggest decline in September was in orders for communications equipment. They fell 18.6 percent. Orders for primary metals such as steel dropped 0.5 percent. Orders for computers and related electronic products rose 2 percent, and orders for heavy machinery advanced 2 percent.

Demand for transportation equipment jumped 15.7 percent, the best showing since January. The volatile category had fallen by 8.8 percent in August.

The gains were primarily because spending on orders for commercial aircraft doubled in September. That offset a 0.4 percent drop in demand for motor vehicles.

"The next leg of the recovery will increasingly rest on the shoulders of consumers," said Sal Guatieri, a senior economist with BMO Capital Markets."

A separate Commerce Department report Wednesday showed that sales of new homes improved last month after the worst summer in nearly five decades, but not enough to lift the struggling economy.

New-home sales in September grew 6.6 percent from a month earlier to a seasonally adjusted annual sales pace of 307,000. Even with the increase, the past five months have been the worst for new-home sales on record, dating back to 1963.

The September sales figures were driven by a 61 percent monthly surge in the Midwest. Sales grew about 3 percent in the South and Northeast. They fell by nearly 10 percent in the West.

Dales called the September home sales encouraging but said that doesn't change the fact that activity remains at extremely low levels.

"That's unlikely to change for a few years," he said.

The median sales price was $223,800. That was up 3.3 percent from a year earlier.

New-home sales have risen 9 percent from the bottom in May but are still down 78 percent from their peak sales pace of nearly 1.4 million homes in July 2005.

- Associated Press

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