Durable goods, new home sales better than expected
WASHINGTON — Demand for big-ticket manufactured goods and new home sales both were better than expected in March, raising hopes that the long slides in manufacturing and housing are slowly coming to an end.
The Commerce Department said Friday that orders for durable goods dropped 0.8 percent last month, about half the 1.5 percent decline that economists expected. A rise in orders for commercial and military aircraft helped cushion weakness elsewhere.
The small drop followed a 2.1 percent increase in orders in February. That was the first gain after six straight monthly declines.
New home sales fell 0.6 percent last month to a seasonally adjusted annual rate of 356,000 from an upwardly revised February rate of 358,000, the department said. Economists surveyed by Thomson Reuters expected a sales pace of 340,000 units. The inventory of new homes for sale dropped 5 percent from February levels.
February’s results were 6 percent higher than originally reported, but home sales last month were down nearly 31 percent from March 2008.
The housing results fanned optimism that developers have slashed prices and construction enough that sales have finally hit bottom. Prices, however, are likely to remain weak for months as builders continue to clear out their stock of unsold homes.
While February’s durable goods results were revised down from an earlier estimate of a 3.5 percent gain, that rise in orders followed by only a small drop in March show some faint signs of life in manufacturing.
Still, economists cautioned the best that can be expected is for industrial production to stabilize. They do not expect a rebound from the current low levels anytime soon given all the problems facing the economy.
“The bottom line here is that it is still impossible to tell whether the sharp slowing in the rate of decline of core orders in February-March is simply a correction after the horrors of the previous few, post-Lehman months, or the start of a genuine stabilization,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.
U.S. manufacturers have been hurt by a steep drop in demand at home and from major overseas markets, which face their own recessions.
Diversified manufacturers 3M Co. and Honeywell International Inc. on Friday reported large drops in their quarterly profits and lowered their earnings outlooks for the year. 3M said weak demand from U.S. customers hurt sales of LCD screen coatings, office supplies, steel coatings and other products, while Honeywell said the broader downturn in commercial aviation and autos weighed heavily on its sales.
But on Wall Street, stocks rose after Ford Motor Co.’s better-than-expected quarterly results. The Dow Jones industrial average added about 75 points in afternoon trading, and broader indices also rose.
Still, demand for transportation products fell 1.4 percent in March, reflecting a continued slide in orders for motor vehicles, which fell 1.7 percent, according to the government data.
That weakness was offset somewhat by increases of 4.4 percent in demand for commercial aircraft and 4.7 percent in orders for military aircraft. Even with the increase in orders for commercial aircraft, they remain sharply lower than a year ago as the global recession has depressed demand worldwide.
Excluding transportation, orders fell 0.6 percent last month, just half of the 1.2 percent decline that had been expected. Demand also dropped for primary metals such as steel, and for orders of machinery and computers.
While non-defense capital goods excluding aircraft — viewed as a good proxy for business investment plans — rose 1.5 percent, they also were significantly lower than a year ago as businesses have slashed efforts to expand and modernize.
The overall economy, as measured by the gross domestic product, fell at an annual rate of 6.3 percent in the fourth quarter, the biggest decline since 1982. Economists believe the GDP fell almost as sharply in the January-March quarter. They expect a smaller fall in the current quarter as the recession becomes the longest in the post-World War II period.
Paul Ashworth, senior U.S. economist at Capital Economics, said the durable goods data “fits within the broader pattern that we are seeing: the severity of the recession is easing gradually, but any actual recovery is still some way off.”
The lengthy downturn already has resulted in more than 5 million jobs lost in the U.S. since December 2007, and companies still are announcing mass layoffs and extended plant shutdowns.
General Motors Corp. on Thursday said it will temporarily close 13 assembly plants in the U.S. and Mexico, laying off more than 26,000 workers. The closures, which will start in May, will be as short as three weeks to as long as 11.
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AP Real Estate Writer Alan Zibel contributed to this report.
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