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New home sales, durable goods drop

By Associated Press
Published May 27, 2004

WASHINGTON - Orders to factories for big-ticket goods fell sharply in April after a strong gain in the previous month, reflecting the sometimes bumpy recovery by manufacturers.

The Commerce Department reported Wednesday that orders for "durables" - costly manufactured goods expected to last at least three years - dropped by 2.9 percent last month. It was the biggest decline since September 2002.

April's slackening in demand for big-ticket goods came after sizable gains in February and March, where orders went up by 3.9 percent and 5.7 percent, respectively.

In other economic news, new-home sales fell by 11.8 percent in April from the month before to a seasonally adjusted annual rate of 1.09-million units, the lowest level since November, the department said in a second report.

The decline, which followed a 9.7 percent jump in March that left sales at a record high pace of 1.24-million units, came as mortgage rates climbed. The average rate on a 30-year mortgage in April was 5.83 percent, compared with 5.45 percent in March.

David Seiders, chief economist at the National Association of Home Builders, did not see the drop in April's sales, the biggest in 10 years, as worrisome. Looking ahead, he believes that an improved job climate should help offset the impact of higher mortgage rates, making for healthy housing activity this year.

In financial markets, the Dow Jones industrials lost 7.73 points to close at 10,109.89.

On the manufacturing front, economists were predicting a drop in big-ticket orders for April given the robust demand in March, but they were forecasting a smaller, 0.8 percent decline.

While the larger than expected drop was disappointing, it was viewed as temporary rather than a harbinger of an unraveling of manufacturing's recovery.

"Manufacturing is recovering well, and I fully expect that to continue for many months," said economist Ken Mayland, president of ClearView Economics. Even with the drop in April, orders for big-ticket goods are up an impressive 12.4 percent from a year ago, he pointed out.

Other recent reports, including one released by the Federal Reserve this month, suggested that manufacturing activity was healthy in April.

Manufacturers, hardest hit by the 2001 recession, have struggled over the past three years to get back on firm footing.

Overall, the economy is growing solidly. With inflation starting to creep, a growing number of economists believe Federal Reserve policymakers might order their first interest rate increase in more than four years next month. Others, however, are forecasting a rate rise in August or later.

The Fed's main short-term interest rate used to influence economic activity now stands at a 46-year low of 1 percent.

In Wednesday's manufacturing report, the decline was led by a 4.7 percent drop in demand for transportation equipment, including cars and airplanes. Factories saw demand for those products increase by 4.1 percent in March.

Orders also fell in April for machinery, primary metals, including steel, and fabricated metal products. Orders for communications equipment, computers, electrical equipment and appliances, however, all posted solid gains.

The drop in new-home sales was larger than economists had forecast, but the National Association of Realtors reported Tuesday that sales of previously owned homes posted its second-best month on record in April.

Seiders predicted sales of previously owned homes and new homes for all of this year could set new records.

[Last modified May 27, 2004, 01:00:38]

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