Orders for Durable Goods Up Solid 2.9% : Surprisingly Strong Report Casts Doubt on Possibility of Lower Interest Rates
A surprisingly strong report on April durable goods today threw cold water on new speculation that the Federal Reserve will fight a surging dollar by lowering interest rates.
Orders for durable goods jumped a solid 2.9%, suggesting that the nation’s 6 1/2-year economic expansion is still on track and that inflation remains a threat.
“This should act to keep the Federal Reserve from easing monetary policy right now despite the strength in the dollar,” economist Bill Dudley of Goldman, Sachs & Co. said.
Earlier, financial markets were lit up by reports that the Fed might cut key lending rates in order to temper the dollar’s rise. Newspapers quoted top U.S. economic officials as saying moves were afoot at the Fed to loosen credit.
Strongest Since December
But those expectations dimmed with the report of a 2.9% orders gain, the strongest since December’s 7.4% rise and well above the 1% expected.
Stock prices fell after the report, which surprised traders who had expected an increase of about 1%. The Dow Jones industrial average was off 14.30 to 2,487.72 at noon.
“The (durable goods) report is indicative of the economy’s ability to outperform expectations as it has done consistently over the past four or five years,” economist Joe Liro of S. G. Warburg Securities said.
Without the erratic defense category, which fell sharply, durable goods orders would have been up an even stronger 4.7% in April, after a 0.9% decline in non-defense orders the previous month.
Electrical Machinery
The largest increase in April orders was for electrical machinery, up $1.7 billion, or 9.4%, to $20 billion, the bureau said. About half of the increase reflected orders for communications equipment.
Primary metals increased $0.7 billion, or 5.6%, to $12.5 billion, with non-ferrous metals accounting for virtually all the increase. Non-electrical machinery was up $0.3 billion, or 1.4%, to $22.6 billion.
The goods data tends to be volatile, so economists were cautious, but the broad-based order increases convinced many that the April uptick in orders was no fluke.
“There was strength across the board in a number of categories,” observed economist Kevin Flanagan of Dean Witter Reynolds Inc.
“The most obvious conclusion you can draw from this report is that there’s no recession in sight,” Goldman’s Dudley said.
