Orders for "big ticket" durable goods declined by a modest 1.5 percent in July as auto makers cut production in response to swollen inventories, the government said yesterday.
The Commerce Department said orders for durable goods -- products expected to last three or more years -- dropped by $1.7 billion to a seasonally adjusted $107.5 billion last month.
The dip followed a 2 percent increase in June and was the first decline since a sharp 9.8 percent drop in January.
A separate report from a real estate trade group showed that sales of existing homes were nearly flat in July, with higher mortgage interest rates apparently discouraging some buyers.
The July decline in orders for durable goods was reflected in most subcategories, but economists pointed to strength in a key barometer of business investment plans.
Orders for nondefense capital goods, considered an indicator of future plant and equipment spending, rose 1.6 percent in July after a 0.4 percent drop in June.
"This is telling us that capital spending purchases should be picking up in the second half of the year," said Michael K. Evans, head of an economic consulting firm in Washington. "Considering that the rest of the economy isn't so hot, it's welcome news."
He said business investment, slowed early in the year by the new tax law, is picking up, in part because of an increase in the volume of exports.
The July downturn was led by a 5.7 percent drop, to $27.2 billion, in transportation equipment. In that category, declines in motor vehicles and parts, and shipbuilding and tanks more than offset an increase in orders for aircraft and parts.
But Commerce Undersecretary Robert Ortner said the drop in automobile orders had been expected because car dealers had built up a large inventory in preparation for the start of a new model year in the fall.
He said orders for durable goods tend to vary sharply from month to month and said a three-month moving average of orders is up 14 percent on an annual basis compared with six months ago.
"We've had some very strong months this year. Obviously, this was not a very strong month, but big ticket items do not have to be ordered every month," he said.
Lawrence Chimerine, president of Wharton Econometrics, a Philadelphia-based forecasting firm, predicted strong auto sales over the next couple of months. But he said those sales, spurred by manufacturers' incentive plans, are "borrowed from the future" and would not cause greater production.
"Orders for new cars will be a weak spot for most of the rest of the year," he said.
Within the major industries, orders for electrical machinery fell 2.2 percent to $19.2 billion, following a 7.2 percent climb in June. Orders for nonelectrical machinery climbed 4.2 percent to $18.2 billion, more than making up for a 0.9 percent June decline.
Primary metals orders declined 3.4 percent to $9.6 billion. The drop broke a string of five consecutive monthly increases.
Orders in the volatile defense goods category fell 4.8 percent to $10.1 billion, following a 12.4 percent increase a month earlier. Excluding defense, orders for durable goods fell 1.2 percent.
"Overall the numbers are pretty worrisome," said David Wyss, chief economist of Data Resources Inc., a Massachussetts consulting firm. "The fact is that every category declined except nonelectric machinery. ... When it's that widespread, you can't just write it off as a fluke."
Shipments of durable goods in July fell 1.2 percent to $376.9 billion.
The National Association of Realtors said existing single-family homes were sold at a seasonally adjusted annual rate of 3.53 million units in July, up 0.9 percent from the 3.5 million rate in June.
Sales of homes had fallen 7.1 percent in June and risen 5.9 percent in May.
"The fact that existing-home sales were essentially unchanged from June to July is in part a lingering effect of the increase in mortgage interest rates," said John A. Tuccillo, the association's chief economist.
The average effective interest rate for mortgages on previously owned homes fell from 9.53 percent to 9.09 percent in March and April, then rose steadily to 9.43 percent in July. The average includes both fixed-rate and adjustable-rate loans.
The median resale price of a single-family home rose 0.7 percent to $85,800 in July from a month earlier. The median was 7.4 percent higher than a year earlier.
Resales increased by 6.3 percent to 680,000 units in the West, the only region with an upturn.
In the Northeast, sales were off by 1.5 percent, also to 680,000 units.
They held steady in the South, at 1.27 million units, and in the Midwest, at 900,000 units.