The Wall Street Journal-20080130-Foreign Demand Aids Durable Goods
Return to: The_Wall_Street_Journal-20080130
Foreign Demand Aids Durable Goods
Full Text (621 words)Orders for business equipment and other big-ticket items surged in December, driven by robust foreign demand.
But the surprising strength of those orders may not provide enough momentum for the economy to shake off the continuing weakness in housing and troubles in credit markets. Home prices in the U.S. dropped 8.4% in November from a year earlier, and aren't showing any sign of hitting bottom, according to the latest S&P/Case-Shiller index data.
Orders for durable goods -- machinery, computers and other items designed to last three years or more -- rose 5.2% in December, the Commerce Department said. The improvement was especially pronounced in defense orders. But civilian aircraft, computers and machinery categories also showed healthy gains.
Manufacturers are finding "a significant incentive to increase market share in the overseas markets," said Global Insight economist Brian Bethune. "They're getting big tail winds" from a weaker dollar, he said.
A closely watched barometer of business investment offered some encouragement for the current quarter: orders for nondefense capital goods, excluding aircraft, rose 4.4% in December after a small November decline. But orders for autos and housing-related goods, such as appliances, declined, and inventories rose by their fastest pace since September 2006.
Still, in the wake of the report, some analysts raised their estimates for gross-domestic-product growth in the fourth quarter. Macroeconomic Advisers, the St. Louis forecasting firm, increased its estimate by 0.3 percentage point to 1.5%. The government is set to release its estimate today.
"Export markets for capital goods look pretty good in the current year," said Citigroup economist Steven Wieting. "But a softening in demand in the U.S. is going to be felt even harder" in industries that cut back to clear inventories.
The mixed economic news emerged as Federal Reserve policy makers began a two-day meeting on interest rates. Today, the Fed is widely expected to cut its benchmark federal-funds rate, now at 3.5%, by at least a quarter percentage point -- and possibly by a half point.
Robert Shiller, an economist who helped create the house-prices index, called the latest decline "another grim milestone in the housing market."
The data showed that home prices in 10 major metro areas in November declined 2.2% from October. A 20-city index declined 7.7% from a year earlier and 2.1% from the previous month. Miami had the worst showing, with a 15.1% year-to-year decline in prices. Charlotte, N.C., Portland, Ore., and Seattle were the only areas reporting price increases from the year before.
Separately, the government reported that homeownership dropped to 67.8% in the fourth quarter, down 0.4 percentage point from the third quarter and 1.1 percentage points from a year earlier, the largest decline from a year earlier on record. President Bush frequently has cited homeownership as a main part of his "ownership society" philosophy.
The homeowner-vacancy rate rose to 2.8% in the fourth quarter from 2.7% the previous quarter, according to the Commerce Department report.
Consumers, meanwhile, are showing signs of nervousness about the economy. The Conference Board's index of consumer confidence fell to 87.9 in January from 90.6 in December. The business group said consumers have grown downbeat about the short-term outlook, expecting business conditions and employment to worsen. The proportion who expect their personal earnings to rise also dropped, which could hurt consumer spending.
Separately, the Federal Reserve said its latest auction of short- term loans -- designed to ease credit-market strains -- generated less interest among banks than its three previous offerings. The auction of $30 billion in 28-day loans drew $37.5 billion in bids from 52 banks. The interest rate for the loans is 3.12%. The weaker demand is due in part to improvement in credit markets and uncertainty about what the Fed will do about rates.
