Orders dip for durable goods

2.8% falloff last month biggest since Sept. 2002

`Economy ... losing momentum'

Noting volatility, some say drop might be overstated

April 28, 2005|By BLOOMBERG NEWS

U.S. durable goods orders unexpectedly fell 2.8 percent last month, the most in more than two years, leading some economists to pare growth estimates as a pullback in spending spreads from consumers to companies.

The decline in bookings for items made to last at least three years was the largest since September 2002 and followed a 0.2 percent drop in February, the Commerce Department said yesterday. The falloff reflected fewer orders for aircraft, cars and machinery.

"You are starting to see some evidence that the economy is losing momentum," said Steven Ricchiuto, chief U.S. economist at ABN Amro Inc. in New York, who predicted a drop.

Some analysts said the March drop might have been overstated, noting that durables are a volatile indicator.

Major U.S. stock indexes rose as a decline in oil prices and several strong earnings reports offset concerns about the economic news.

"In each of the last six years that the Easter holiday has fallen in the month of March, durable goods has been lower," said John Brady, senior vice president of Man Financial Inc. in Chicago. "Perhaps the Easter holiday has distorted the data a little bit. Durables is a very volatile series within itself."

The declines in yesterday's report were broad-based. Bookings for nondefense capital goods excluding aircraft, a proxy for future business investment, dropped 4.7 percent, the most since November 2003, after falling 2.5 percent in February.

Orders for transportation equipment, computers and other electronic products each fell 7.8 percent, and machinery orders decreased 7.6 percent, the most since June 2002.

Orders for communications equipment rose 5.1 percent after falling 1.5 percent a month earlier. As for an economic slowdown, "we have not seen it yet," said Jim Flaws, chief financial officer of Corning Inc., the world's largest maker of fiber-optic cable.

The report will probably not dissuade Federal Reserve policymakers from raising their target for the benchmark interest rate by another quarter of a percentage point when they meet next week, economists said. Central bankers are more intent on keeping inflation in check than they are concerned about growth.

"We are in a moderate growth phase, but that should not change the view of the monetary policymakers that we need to have more-normal interest rates," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa.

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