Durable goods orders rise again; home sales surge

But analysts fear consumer spending will remain muted

(WASHINGTON) Orders for durable goods rose last month by the largest amount in two years, as the US manufacturing sector rebounded from the depths of the recession.

There was more good news yesterday when it was reported that new US home sales surged 9.6 per cent in July, rising for the fourth straight month and beating expectations as the housing market marches steadily back from its historic downturn.

The Commerce Department said yesterday that orders for goods expected to last at least three years increased 4.9 per cent in July, the third rise in the past four months. Analysts expected a 3 per cent increase. Orders for June were revised up to a 1.3 per cent drop, from a 2.2 per cent decline.

The better-than-expected durable goods and housing data followed positive readings on Tuesday about consumer sentiment and home prices.

But analysts remain concerned that all-important consumer spending will stay muted as Americans try to rebuild savings decimated by falling home prices and reduced stock portfolios.

'The factory sector is obviously enjoying a rebound in demand, some of it from abroad and some of it linked to inventory rebuilding,' Paul Ashworth, senior economist at Capital Economics, wrote in a note to clients. 'However, with the consumer still supine, we don't yet have the foundations for a sustainable recovery.'

The durable goods report, however, showed that orders for non-defence capital goods excluding aircraft, a key measure of business investment, dropped 0.3 per cent. Some economists expected that category to fall after rising in May and June.

The Commerce Department also said yesterday that sales of new homes rose to a seasonally adjusted annual rate of 433,000 from an upwardly revised June rate of 395,000. Sales are now up 32 per cent from the bottom in January, but off 69 per cent from the frenzied peak four years ago.

Last month's sales pace was the strongest since September and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 390,000 units. The last time sales rose so dramatically was in February 2005.

The median sales price of US$210,100, however, was still down 11.5 per cent from US$237,300 a year earlier.

There were 271,000 new homes for sale at the end of July, down more than 3 per cent from May. At the current sales pace, that represents 7.5 months of supply - the lowest since April 2007.

The decline means builders have scaled back construction to the point where supply and demand are coming into balance. -- AP

Source: Business Times, 27 Aug 2009