Durable goods orders rise, but capex looks weak

Wed Mar 26, 2014 12:01pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - Orders for long-lasting U.S. manufactured goods rebounded in February, but a surprise drop in a gauge of planned spending on capital goods pointed to sluggish economic growth this quarter.

The Commerce Department said on Wednesday orders for durable goods increased 2.2 percent, ending two straight months of declines. Durable goods are items like toasters and aircraft that are meant to last three years or more.

However, orders for non-defense capital goods excluding aircraft unexpectedly fell 1.3 percent after rising 0.8 percent in January. This core capital goods measure is a closely watched proxy for business spending plans.

"First-quarter business investment looks to be soft, and it challenges some of the optimism surrounding the idea that capital expenditures were set to advance noticeably in 2014 from their 2013 pace," said Omair Sharif, senior economist at RBS in Stamford, Connecticut.

Economic growth in the first quarter is expected to have slowed from the fourth quarter's annualized 2.4 percent rate, with the expansion held back by unseasonably cold weather and an effort by businesses to work through a pile of unsold goods.

Some economists trimmed their forecasts of first quarter business investment on the orders data, but held their overall GDP forecasts steady, given an increase of 0.8 percent in durable goods inventories in February.

A separate report showed the services industry grew solidly in March, adding to data such as industrial production, retail sales and employment in suggesting the economy was starting to pull out of its weather-induced soft patch.

Financial data firm Markit said its "flash" services sector Purchasing Managers Index rose to 55.5 in March from 53.3 in February. A reading above 50 indicates expansion.   Continued...

A woman shops for refrigerators at a store in New York July 28, 2010. REUTERS/Shannon Stapleton