Economy Gains Steam as Durable Goods Orders Rise

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Operations At The B&H Tool Works Inc. Manufacturing Facility Ahead Of Durable Goods Figures
Luke Sharrett/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- 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 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," %VIRTUAL-article-sponsoredlinks%said Omair Sharif, senior economist at RBS in Stamford, Conn.

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.

Shipments Rebound

The mixed reports helped to lift the dollar against a basket of currencies. Stocks on Wall Street pushed higher and U.S. Treasury debt prices rose marginally.

Shipments of core capital goods rose 0.5 percent last month. Shipments of these goods are used to calculate equipment spending in the government's gross domestic product measure. They had declined 1.4 percent in January.

"The improvement in core capital goods shipments suggests that this sector of the economy could provide a modest boost to economic activity this quarter," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The durable goods report showed overall shipments increased 0.9 percent in February, after two straight months of declines. Unfilled orders also increased after being flat in January.

Last month, orders for transportation equipment increased 6.9 percent as bookings for automobiles recorded their largest gain in a year. Transportation orders had declined 6.2 percent in January.

Stripping out the increase in transportation orders, durable goods demand would have risen just 0.2 percent in February.

There were also increases in orders for primary metals, fabricated metal products and computers and electronic products. Orders for machinery fell for a second straight month as did bookings for electrical equipment, appliances and components.

-Additional reporting by Richard Leong and Rodrigo Campos in New York.

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Economy Gains Steam as Durable Goods Orders Rise
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
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Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
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