June 25, 2013 / 1:45 PM / 6 years ago

Upbeat data brighten economic outlook

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.

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

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.

Core capital goods shipments, used to calculate equipment and software spending for the government’s measures of gross domestic product, rebounded 1.7 percent after a 2.0 percent drop in April. The gain pointed to moderate growth in business investment this quarter.

In a second report, the department said new home sales increased 2.1 percent to a seasonally adjusted annual rate of 476,000 units - the highest level since July 2008. It was the third straight month of gains in new home sales.

The housing market’s strengthening tone was confirmed by the S&P/Case Shiller home price composite index of 20 metropolitan areas, which increased 12.1 percent in April from a year ago, the largest annual rise since March 2006.

The now-entrenched housing recovery has helped lift consumer confidence and made Americans less fearful about spending on big-ticket items. The Conference Board said in another report that its index of consumer attitudes rose to 81.4 in June, the highest since January 2008, from 74.3 in May.


The housing recovery is boosting revenues for builders like Lennar Corp, the No. 3 U.S. homebuilder. Lennar reported a stronger-than-expected 53 percent rise in second quarter revenue on Tuesday.

“Our second-quarter results together with real-time feedback from our field associates continue to point towards a solid housing recovery,” Chief Executive Stuart Miller said in a statement.

The pickup in the housing market has been driven by record-low mortgage rates engineered by the Fed. Though mortgage rates have risen sharply in anticipation of less central bank stimulus, economists do not think the recovery will be derailed.

“Housing will remain a bright spot for the economy, even if rates do remain somewhat elevated,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

In addition to boosting household net worth, which supports consumer spending, the housing recovery has spilled over to manufacturing by fuelling demand for construction materials and consumer items like stoves and refrigerators. This has helped offset cuts in government spending and slowing global demand.

Last month, demand for durable goods rose in all categories, with the exception of motor vehicles. Other details of the report also showed strength with unfilled orders and shipments both increasing, and inventories up only marginally.

Reporting by Lucia Mutikani, additional reporting by Leah Schnurr in New York; Editing by Andrea Ricci, Tim Ahmann and Chizu Nomiyama

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