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Drop in Orders for Durable Goods Disappoints Wall St. - New York Times

Written by Subject: Economy - Economics USA
February 28, 2007

Steep Drop in Orders for Durable Goods Disappoints Wall St.

By JEREMY W. PETERS for The New York Times

American manufacturers reported a sharp drop in demand last month for expensive, heavy-duty items, renewing concerns about softness in the economy.

The Commerce Department reported today that orders for durable goods — which include household appliances, jet engines and computer parts — fell 8 percent in January after increasing in November and December.

The decline helped accelerate a sell-off on Wall Street, which was already reeling from a plunge in Chinese stock markets. The damage spread to Europe and then to the United States, where all three major stock indexes were in decline. The Standard and Poor’s 500-stock index and the Dow Jones industrial average were each trading more than 1 percent below Monday’s close; the Nasdaq was down more than 2 percent.

Wall Street was expecting a drop in durable-goods orders, but the January data were far weaker than economists had forecast. In addition to the 8 percent drop over all, the government’s measure of core durable goods, a less volatile figure because it excludes civilian aircraft and military spending, declined 3.4 percent.

And a closely watched measure of business spending in the Commerce Department report, orders for nondefense capital goods other than aircraft, fell 6 percent, the third drop in four months.

Economists said the new data suggested that the economy could be weaker than many had thought. “We have a picture of an economy that — while remarkably resilient over the past four quarters in the face of negative housing and energy shocks — is starting to show signs of battle fatigue,” said Brian A. Bethune, an economist with Global Insight.

On one front, the economy showed some signs of strength. A new report issued today by the National Association of Realtors said that sales of previously owned homes, which account for about 85 percent of all home sales in the United States, rose 3 percent in January. But the association noted that unusually warm weather probably helped inflate the numbers.

In a further sign that the housing market remains in a slump, the median price of a previously owned home declined in January to $210,600, down 3 percent from the same month a year earlier. Inventories of unsold homes also remain elevated. In January, it would have taken 6.6 months to sell all previously owned homes on the market, the same amount of time it would have taken in December.

“The housing market still has some issues that need to be worked through,” said Joel L. Naroff, president of Naroff Economic Advisors. “And we will not likely have a good picture of the state of the industry until late spring.”

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