Foreign demand for U.S.-made durable goods helped American factories weather a collapse in new-home sales to the lowest level in almost 17 years last month, reports indicated today.
Bookings for durable goods, those meant to last several years, rose 1.5 percent excluding transportation equipment, the Commerce Department said today in Washington. Manufacturers are benefiting from a 9 percent drop in the dollar against currencies of major trading partners over the last year, spurring record exports. Separate figures showed new-home sales slid 8.5 percent.
Treasuries fell, sending two-year note yields to their highest since January, on speculation the Federal Reserve will pause its series of interest-rate cuts after this month. Morgan Stanley and Lehman Brothers Holdings Inc. economists raised their estimates of first-quarter economic growth.
``Manufacturing is holding up due to strength in the global economy, the weak dollar and the fact that businesses are still pretty profitable,'' said Gus Faucher, head of macroeconomics at Moody's Economy.com in West Chester, Pennsylvania, which correctly forecast the gain in durables orders excluding transportation. ``Weakness is going to be concentrated in housing.''
Separate figures today showed first-time jobless claims unexpectedly fell to a two-month low last week.
New-home sales dropped to an annual pace of 526,000, the lowest since October 1991, from 575,000 the prior month, the Commerce Department said. The median sales price declined 13.3 percent from a year before, the most in almost four decades.
Glut of Properties
``We're certainly not out of the woods on housing,'' Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Radio.
Two-year Treasury yields climbed to 2.39 percent at 4:17 p.m. in New York, up from 2.19 percent late yesterday. The Standard & Poor's 500 Index rose 0.6 percent to close at 1,388.82. Futures had fallen as much as 0.8 percent before the market opened.
Traders anticipate the Fed will lower its benchmark rate a quarter point to 2 percent next week and then hold off on further reductions, future prices show.
``People are starting to adjust to a world in which the federal funds rate is going to be falling at a slower rate if at all,'' said Tyrone Smith, managing director of the government trading desk at Citigroup Global Markets in New York. ``The market's really reacting to the ex-transportation number and jobless claims.''
Total Orders
Total orders for durable goods fell 0.3 percent, restrained by a decrease in defense-related hardware. Orders for February were revised to a drop of 0.9 percent, less than the 1.1 percent previously estimated.
The Labor Department said that initial claims for unemployment benefits dropped to 342,000 last week. The number of people staying on benefit rolls declined to 2.934 million from close to a four-year high of 2.999 million the week earlier.
Economists forecast total orders would rise 0.1 percent, according to the median of 78 projections in a Bloomberg News survey. Excluding transportation equipment, orders were projected to rise 0.5 percent, after a previously reported 2.4 percent decline for February.
A rebound in demand for machinery and metals, combined with continued increases in computer bookings, paced the increase in the non-transportation category.
Influence on GDP
Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, was unchanged following a 2 percent decline in February that was smaller than previously estimated. Shipments of those items, a number used in calculating gross domestic product, increased 1.2 percent.
Total orders excluding defense equipment orders increased 0.3 percent as bookings for military gear dropped 20 percent.
Companies that export have fared better during the current slowdown in growth. A shrinking trade gap added 1 percentage point to fourth-quarter economic growth, according to Commerce Department figures. Without that, the economy would have contracted in the final three months of 2007.
Parker Hannifin Corp., the world's largest maker of hydraulic equipment, said April 22 that third-quarter earnings gained 22 percent, propelled by international sales. The company also boosted its full-year forecast.
``Orders are growing in Europe, Asia, Latin America and North America,'' Chief Executive Officer Donald Washkewicz said in a statement. ``Many of our key markets, including aerospace, continue to grow. For other markets, especially those in North America, which have been in recession, we are positioned to benefit when they return to more normal growth levels.''
GDP Report
Today's figures are one of the last that may influence forecasts ahead of the Commerce Department's advance report on first-quarter gross domestic product due April 30. Growth slowed to a 0.3 percent annual pace from January through March, the weakest in more than five years, according to the median estimate of economists surveyed by Bloomberg News.
The Fed last week said economic growth slowed in nine of 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.
So far, manufacturing has done better than in past downturns. While the Institute for Supply Management's factory index fell to a five-year low of 48.3 in February, it was still well above the 42.1 reading reached in February 2001, a month before the start of the 2001 recession. A figure of 50 is the dividing line between growth and contraction.
Inventories Rise
One troubling sign in today's report was that inventories of durable goods jumped 1.1 percent, the most this year, and shipments fell. That indicates that, while gains in stockpiles may have contributed to economic growth last quarter, companies will need to pare production in coming months.
``We have recession-type conditions,'' Mickey Levy, chief economist at Bank of America Corp. in New York, said in an interview with Bloomberg Television. ``I expect over the next three to four months continued weakness in durable goods, which means continued weakness in capital spending.''
Orders for computers and electronic products rose 1.9 percent. Demand for metals increased 0.2 percent and climbed 6.2 percent for machinery.
Bookings for aircraft increased 5.5 percent in March, while automobiles dropped 4.6 percent.
Boeing Co. orders dropped to 99 in March, from 125 a month earlier. Deliveries rose to 42, from 39.
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