US durable goods orders post 3.3% increase

Washington: Orders for long-lasting US manufactured goods rose more than expected in April, a hopeful sign that a contraction in factory output could soon run its course.

New orders for durable goods, which range from toasters to aircraft, increased 3.3 per cent last month, the Commerce Department said on Friday.

The data was the latest to show the US economy showing surprising resilience in the face of harsh fiscal austerity measures enacted this year.

“[It’s] another sign that growth is holding up quite well,” said Paul Ashworth, an economist at Capital Economics in Toronto.

While Washington hiked taxes in January and sweeping budget cuts began in March, consumer spending has looked relatively robust and many economists think the US Federal Reserve could begin tapering a monetary stimulus program by the end of the year.

Economists polled by Reuters had expected new durable goods orders to rise 1.5 per cent last month. The Commerce Department also revised prior readings for orders to show a smaller decline in March than previously estimated.

STOCKS FALL FOR THIRD DAY

Futures for US stock indexes pared losses following the data’s publication, while yields rose on US government debt.

Meanwhile, US stocks fell for a third day on Friday amid lingering concern the US central bank may scale back its support to the economy.

Trading has been choppy in the second half of the week as market participants assess the Federal Reserve’s evolving stance towards markets. Fed support has been instrumental in a rally that has boosted US stocks to record highs this year.

However, many analysts say the eventual tapering of Fed stimulus will come with an expansion in the economy and corporate earnings, which will continue to support equities. Market pullbacks have been short and shallow since November as traders take any weakness as an opportunity to increase long positions.

Since Wednesday, the markets have been focused on the possibility of Fed purchases being scaled back later this year, in the wake of recent congressional testimony by Fed chairman Ben Bernanke and the minutes from the latest Federal Open Market Committee meeting.

“Markets are looking for a reset and a retracement lower, closer to more compelling valuations,” said Peter Kenny, chief market strategist at Knight Capital in Jersey City, New Jersey.

He said on Wednesday there was a shift that “reintroduced a sense of caution that has long been absent” in markets.

The minutes, Kenny said, showed a degree of fracture in the Federal Open Market Committee “in terms of the approach moving forward, specifically the time frame” of the unwinding of the Fed’s stimulus efforts.

The Dow Jones industrial average fell 79.56 points or 0.52 per cent, to 15,214.94, the S&P 500 lost 11.95 points or 0.72 per cent, to 1,638.56 and the Nasdaq Composite dropped 25.28 points or 0.73 per cent, to 3,434.13.

Major indexes were on track to post their first negative week in five.

Data from earlier this month showed a broader measure of US factory output fell in April for the second straight month, hurt by the European debt crisis which has weighed on demand at factories around the world from Los Angeles to Shanghai.

Friday’s report showed a measure of underlying demand in the factory sector, which strips out aircraft and military goods and is a closely watched proxy for business spending plans, advanced 1.2 per cent. That was a faster clip than analysts had expected.

Even if that signals a return to growth in the factory sector, economists expect government austerity will nevertheless sap strength from the economy as the year progresses.

“While [Friday’s data] was definitely better than expected, I would not mistake this for rip-roaring strength,” said Stephen Stanley, an economist at Pierpont Securities in Stamford, Connecticut.

Shipments of core capital goods, which go into calculations of equipment and software spending in the gross domestic product report, fell 1.5 per cent. That suggests business spending got off to a weak start in the second quarter, and could reinforce expectations that economic growth will slow during the period. Shipments for capital goods in the defence sector, which is shouldering a large share of Washington’s austerity drive, fell 5.6 per cent.

Still, the strength in overall new orders was broad based, from transportation to machinery and electronics. Demand for transportation equipment jumped 8.1 percent, boosted by sharp gains in the volatile aircraft segments.

This had been widely expected as plane-maker Boeing received orders for 51 aircraft, up from 39 in March, according to information posted on its website.