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2 reports fuel hopes that slide is slowing
Durable goods, home sales top expectations
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Published: April 25, 2009
WASHINGTON - Demand for big-ticket manufactured goods and sales of new homes were both better than expected in March, raising hopes that long slides in manufacturing and housing are slowly coming to an end.
The Commerce Department said yesterday that orders for durable goods dropped 0.8 percent last month, about half of 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.
Sales of new homes 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 cut 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 houses.
Although 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 that 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, the 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. reported large drops in their quarterly profits yesterday and lowered their earnings outlooks for the year. 3M said that weak demand from U.S. customers hurt sales of LCD-screen coatings, office supplies, steel coatings and other products, while Honeywell said that 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 more than 119 points to 8,076.29 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 nondefense 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 reduced 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 that 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, the senior U.S. economist at Capital Economics, said that 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.".
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