Upbeat data brighten economic outlook

Tue Jun 25, 2013 1:37pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - The economy appears to be gaining momentum with data showing strong gains in business spending plans last month and the largest annual rise in house prices in seven years in April.

Other reports on Tuesday showed new single-family home sales near a five-year high in May and consumer confidence at its highest level in more than five years this month.

The data suggested the economy was starting to pull out of a soft patch and it supported the Federal Reserve's view that risks to the economy have lessened. Fed Chairman Ben Bernanke said last week the central bank would likely begin to slow the pace of its bond-buying stimulus later this year.

"The economy is leaning forward and the data underscore that it is time for the Fed to begin to move away from expanding its balance sheet," said Steve Blitz, chief economist at ITG Investment Research in New York.

The upbeat economic signals pushed up stock prices, which had been beaten up badly on investors' fears over the loss of the Fed's stimulus. At the same time, prices for U.S. Treasury debt fell as dealers braced for less bond buying by the Fed, while the dollar rallied against yen and the euro.

Durable goods orders increased 3.6 percent last month as demand for goods ranging from aircraft to machinery rose, the Commerce Department said. Orders for these goods, which range from toasters to aircraft, had also risen 3.6 percent in April.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.1 percent. Economists had expected a gain of only 0.3 percent in demand for these so-called core capital goods.

"It signals increased confidence among the business community about the sustainability of the economic recovery, which could itself become self-fulfilling," said Millan Mulraine, a senior economist at TD Securities in New York.   Continued...

Washers and dryers are seen on display at a store in New York in this file photo taken July 28, 2010. REUTERS/Shannon Stapleton/Files