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Durables show strength in April

Orders for autos, aircraft slip, but other sectors gain

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Associated Press / May 29, 2008

WASHINGTON - Orders to US factories for big-ticket items besides autos and airplanes showed surprising strength in April, raising hopes that manufacturing can help the economy shake off the slumping housing market and credit crisis.

Overall, orders for durable goods slid 0.5 percent in April, reflecting steep declines in commercial aircraft and autos, the Commerce Department reported yesterday.

The decline, however, was just one-third of what specialists expected. Take out the volatile transportation sector and orders rose 2.5 percent, the largest gain in nine months. This reflected strength in areas ranging from heavy machinery and primary metals such as steel, and to a record surge in demand for electrical equipment and appliances.

Economists said this indicated the economy was entering the April-through-June period with some momentum in manufacturing, a sector critical to helping keep the country out of recession.

"The economy is soft, but with demand for big-ticket items holding in there, a sharp slowdown does not seem to be in the works," said Joel Naroff, chief economist at Naroff Economic Advisors.

Many economists have worried the economy could slip into a full-fledged downturn because of housing woes, credit tightening, and soaring gasoline prices that have sent consumer confidence plunging. The Conference Board reported Tuesday that its confidence index fell in May to the lowest reading in nearly 16 years.

Despite all the problems, overall growth has managed to stay in positive territory so far.

The government today planned to report a revised figure for the performance of the gross domestic product in the first three months of this year. Many economists believe the initial reading for GDP growth at a 0.6 percent rate for January through March will now be reported at about 1 percent.

While some economists are concerned that GDP could slip into negative territory in the current quarter, the durable goods report showed areas of strength. That included a 4.2 percent rebound in orders for nondefense capital goods excluding aircraft, considered a good proxy for business investment, which is a key GDP component.

"This is a good start for the second quarter and certainly increases the chances that this quarter will be positive," said David Wyss, chief economist at Standard & Poor's in New York.

Analysts said manufacturing is benefiting from a strong export demand. US manufacturers are getting a boost from the weaker dollar, which makes their products cheaper on overseas markets, and by the fact that businesses did not go on an investment spending binge before the current slowdown.

Still, economists said it would be premature to say the country has managed to avoid a recession based on one month's data on durable goods. They are watching to see how consumer spending fared in April. That report comes out tomorrow; consumer activity accounts for two-thirds of the economy.

The durable goods report showed that demand in transportation fell 8 percent. There was a 24.4 percent drop in orders for commercial aircraft and a 3.3 percent decline in orders for motor vehicles.

But demand for primary metals, which includes steel, increased 2.8 percent. Machinery orders climbed 4.2 percent and demand for communications equipment gained 2.2 percent. Orders for electrical equipment and appliances rocketed 27.8 percent, a record, but this reflected in part a rebound following a sharp decline in March.

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