Business | Economy

US economic data brightens outlook

Consumer confidence surges

  • Reuters
  • Published: 19:13 June 25, 2013
  • Gulf News

Washington: Orders for long-lasting US manufactured goods rose more than expected in May and a gauge of planned business spending increased for a third straight month, signalling a pick-up in economic activity.

The growth picture was further brightened by other data on Tuesday showing new home sales were the highest in nearly five years in May and existing single-family home prices recorded their biggest gain in seven years in April.

The upbeat tone also spilled over to consumer confidence, which touched its highest level in more than five years as the housing market recovery softens the blow on the economy from tight fiscal policy.

The reports suggested the economy was pulling out of a soft patch hit early in the second quarter and they were supportive of the Federal Reserve’s view that risks to the economy’s outlook have lessened.

Durable goods orders increased 3.6 per cent 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 risen 3.6 per cent in April.

Economists polled by Reuters had expected orders to rise 3.0 per cent last month. Orders excluding transportation increased 0.7 per cent after advancing 1.7 per cent in April.

Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.1 per cent. Orders for the so-called core capital goods had increased 1.2 per cent in April and economists had expected a 0.3 per cent gain last month.

“It points to further upside momentum for business capital investment activity,” said Millan Mulraine, a senior economist at TD Securities in New York.

“It also signals increased confidence among the business community about the sustainability of the economic recovery - which could itself become self-fulfilling.”

Core capital goods shipments, used to calculate equipment and software spending in the gross domestic product report, rebounded 1.7 per cent.

Those shipments had dropped 2.0 per cent in April and the bounce back last month pointed to moderate growth in business spending on capital equipment this quarter.

In a second report, the Commerce Department said new home sales increased 2.1 per cent 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 a separate report showing the S&P/Case Shiller home price composite index of 20 metropolitan areas increased 1.7 per cent on a seasonally adjusted basis in April.

Prices in the 20 cities accelerated 12.1 per cent from a year ago, the largest rise since March 2006.

The housing recovery has been marked by declines in the inventory of homes for sale and soaring prices, helping to boost consumer confidence and making Americans less fearful about spending on big-ticket items.

The Conference Board said in another report its index of consumer attitudes rose to 81.4 in June, the highest since January 2008, from 74.3 in May.

The data increased the chances of the Fed slowing the pace of its bond-buying stimulus later this year and bringing it to a halt around the middle of 2014, as indicated by the central bank last week.

The Fed is buying $85 billion in bonds per month in an effort to keep interest rates low and drive down still-high unemployment.

Stocks on Wall Street rose, while prices for US Treasury debt fell. The dollar rose against the euro.

Housing boosts confidence

“Home prices going up is very important for consumer confidence,” said Neil Dutta, head of US economics at Renaissance Macro Research in New York. “A recovery in home prices is exponentially more important than the recent pullback in stock prices.”

Housing data will be closely watched in the coming months for signs of strain from the rise in mortgage rates.

The housing recovery is also lifting revenues for builders like Lennar Corp, the No. 3 US homebuilder. Lennar reported a stronger-than-expected 53 per cent 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 on Tuesday.

Gains in housing are also supporting factories, despite a slowdown in global demand.

Manufacturing output ticked up in May and regional factory surveys released so far have shown some strength in June.

Last month, demand for transportation equipment rose 10.2 per cent, buoyed by a surge in orders for civilian aircraft.

Boeing received orders for 232 aircraft, up from 51 in April, according to information posted on its website. Orders for motor vehicles, however, fell 1.2 per cent after rising 2.4 per cent.

Outside transportation there were gains in orders for machinery, computers and electronic products, primary metals and electrical equipment, appliances and components.

Other details of the report we also supportive of manufacturing. Unfilled orders for durable goods rose 0.8 per cent and were up by the same margin excluding transportation.

Overall shipments of durable goods rebounded 1.2 per cent after falling 0.6 per cent in April.

Stocks of unsold durable goods edged up 0.1 per cent, which should help the sector in the long run.

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