Reports Signal Slow Recovery

U.S. economic growth showed signs of stuttering slightly from the speedy pace earlier this year, according to reports Wednesday showing softer demand for durable goods and slower sales of new homes.

Orders for costly manufactured goods dropped 0.6% in March while new-home sales fell 3.1%, selling at an annual rate of 878,000, below the forecast pace of 882,000.

“It just signals a bit of a pull-back from the exceptionally strong data seen earlier in the year,” said Mark Vitner, an economist at Wachovia Securities in Charlotte, N.C.

In the durable goods report, the Commerce Department said orders fell in many sectors, and the housing report, released by the same department, showed inventories of new homes for sale rose to their highest level in two years.

U.S. Treasury yields dropped on the weak data, which bolstered a view that the Federal Reserve can be patient about raising interest rates as it waits for more signs of sustained U.S. economic strength. Fed policymakers hold their next scheduled meeting May 7 amid expectations they will leave rates untouched.

The durable goods numbers also seemed to raise questions about Fed Chairman Alan Greenspan’s assertion Monday that business investment has started to turn around.

Business investment in new equipment is crucial for a solid recovery as pent-up consumer demand is expected to be weaker than in past recoveries.

But analysts said the data released Wednesday should not cloud the overall economic outlook.

For one, the durable goods report arrived without any data for the closely watched semiconductor sector.

The Commerce Department said not enough manufacturers had responded to the survey, so it was forced to eliminate the sector from the series in a surprise move.

“The semiconductor confusion highlights what an unscientific measure of factory orders this report is,” said Lou Crandall, chief economist at R.H. Wrightson & Associates in New York.

Several economists said that although there remain questions about the economic recovery’s strength, the reports Wednesday didn’t add much detail.

“On balance, the durable series tends to be volatile month to month,” said Eric Green, senior economist at BNP Paribas in New York. “The trend is clearly improving.”

Fed officials also were cautiously upbeat.

Fed Vice Chairman Roger Ferguson said the economic outlook had brightened, and Richmond Fed President Alfred Broaddus said the economy is doing better, but he emphasized that the strength of final demand remained a key economic question.

And in its anecdotal report on the economy, also released Wednesday, the Fed said economic growth is improving after falling into recession last year, but echoed officials by saying concerns remain about the pace of recovery.

“Almost all Federal Reserve districts reported signs of improvement or actual increases in economic activity since the last survey” released in March, the Fed said in its “beige book” report on conditions across the country.