Military hardware orders rise 27%

Increase helped yield gain of 0.2 percent in durable goods

Nondefense items fell in September

Sales of new homes reach third-highest annual pace

October 28, 2004|By BLOOMBERG NEWS

WASHINGTON - U.S. orders for durable goods rose in September for the third time in four months, and sales of new homes unexpectedly increased.

Bookings for items made to last at least three years increased 0.2 percent to $195.7 billion, driven by demand for military hardware and business equipment, the Commerce Department said yesterday. Durable goods orders had declined 0.5 percent in August but rose in June and July.

Orders for defense hardware soared 27 percent last month, the most since June. Orders excluding military goods fell 0.9 percent, the biggest decline since April.

New-home sales rose 3.5 percent to an annual rate of 1.206 million units, the third-fastest pace on record, said the National Association of Home Builders.

"We are very encouraged by what we see, and some of the benchmarks we look at say the economy's just fine," said Harry C. Stonecipher, chief executive officer of Boeing Co. of Chicago.

The world's No. 2 aircraft maker reported yesterday that its third-quarter net income rose 78 percent, much of it because of tax settlements and adjustments, retirement of debt and the sale of a commercial finance unit.

The Commerce Department reported aircraft orders plunged 16.3 percent. But with volatile transportation equipment, such as airplanes, excluded, the manufacturing picture looked better: Orders rose by a solid 1.7 percent.

A provision in the tax law that President Bush signed in May 2003 gave an added incentive for buying capital equipment by Dec. 31. Companies can write off 50 percent of qualified investments on equipment delivered by year-end.

Corporate spending and a rebound in consumer purchases helped the economy grow in the third quarter at a 4.3 percent annual rate, a percentage point faster than in the second quarter, according to the median forecast of a Bloomberg News survey.

But investors today are focusing more on the potential effect of rising oil prices on the economy than yesterday's reports.

"The likelihood is that demand is going to soften again given the high energy prices," said Peter E. Kretzmer, a senior economist at Banc of America Securities LLC. "The economy will slow late in the fourth quarter and into early 2005."

Purchases of new homes increased in every region but the West, fueled by 30-year mortgage rates that have been below 6 percent since the end of July.

Sales of new homes this year will reach 1.164 million, surpassing last year's record 1.089 million, according to the latest forecast by the National Association of Home Builders.

"Traffic is up, sign-ups are up and the rest of the country is doing extremely well," said Richard J. Dugas, chief executive officer of Pulte Homes Inc., referring to the sales of new homes.

Pulte, the third-largest homebuilder by market value, said Tuesday that its third-quarter profit rose 54 percent, and that the backlog of homes ordered and awaiting delivery rose 23 percent to 20,400 units.

Bookings for nondefense capital goods excluding aircraft, a proxy for future business investment, rose 2.6 percent last month after rising 0.3 percent in August.

Machinery orders increased 2.9 percent last month after rising 1.7 percent in August. Orders for computers and electronic products rose 9.3 percent last month, the most since June 2000. Communications equipment orders surged 35.6 percent.

"Demand for our products has been pretty good," said Steven Appleton, CEO of Micron Technology Inc., in an interview from London. Micron is the world's No. 2 maker of memory chips.

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