New Factory Orders Increase 2.5%

New orders at U.S. factories rose 2.5% in August as demand for a wide array of both long-lasting and non-durable goods increased, the government said Tuesday in a report that suggested the U.S. economy had momentum before two hurricanes battered the Gulf Coast.

Separately, a key Federal Reserve official issued a warning on inflation, while a key bank regulatory agency said signs of moderation might be emerging in the hot housing market.

The Commerce Department said Tuesday that the increase in factory orders reflected a 3.4% rise in demand for durable goods, items expected to last at least three years, and a 1.6% uptick in non-durable goods. The durable goods figure was revised up from an initial August reading of 3.3% released last week.

The department has said areas affected by Hurricane Katrina account for only 1.85% of total U.S. manufacturing, so any effect of the storm, which hit the Gulf Coast on Aug. 29, was likely to be small.

But some analysts cautioned against reading into the pre-storm data, and have said September figures will be more reflective of the health of the U.S. economy.

“Most of this data was pre-Katrina anyhow,” said Gerald Lucas, chief treasury and agency strategist at Banc of America Securities in New York.

Economists had expected overall factory orders to increase 2% in August, and the increase marked the third rise in four months.

“The factory orders report was very slightly better than expected, although after revisions it was pretty much spot on what the market was expecting,” said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston.

Meanwhile, Dallas Federal Reserve Bank President Richard Fisher said Tuesday that the U.S. central bank needed to be vigilant on inflation.

“The inflation rate is near the upper end of the Fed’s tolerance zone, and it shows little inclination to go in the other direction,” Fisher said at a luncheon sponsored by the Greater Dallas Chamber of Commerce.

His remarks marked the latest in a series of comments from Fed officials signaling concern over inflation risks.

Separately, a report from the Federal Deposit Insurance Corp. on Tuesday said signs of moderation in the hot housing market might be emerging.

FDIC analysts said strong residential and commercial real estate lending in the West, Northeast and South reflected low long-term interest rates and new mortgage products, especially in areas that have seen the fastest growth in home prices.

“However, signs of economic and housing moderation could be emerging, and job growth in even the strongest regions waned slightly in the second quarter,” the FDIC report said.

Although third-quarter data have not been fully compiled or assessed, the FDIC has received anecdotal evidence indicating some cooling in the housing market, said Barbara Ryan, associate director of regional operations in the FDIC’s Division of Insurance and Research.

Ryan said homes appeared to be spending more time on the market, for example. Most of the evidence of softening is coming from California and Florida, she said.