A surprise drop in orders for U.S.-made goods in May dampened hopes for a brisk economic recovery, even as home sales soared and the Federal Reserve slashed rates to give growth an added lift.
U.S. durable goods orders sank 0.3 percent last month after an April drop of 2.4 percent, the Commerce Department said. Private economists forecast May orders would rise 0.8 percent.
The dollar value of orders tumbled to U.S. $168.3 billion, the lowest level since June 2002.
"This report also reveals that the economy is truly facing considerable headwinds from the manufacturing sector," said Anthony Chan, chief economist at Banc Investment Advisors in Columbus, OH, U.S. "I think the Fed remains concerns about these headwinds and that's one of the reasons they cut rates."
In a sign that at least one sector of the economy -- housing -- was firing on all cylinders, two reports showed demand for homes is still surging.
The U.S. Commerce Department said sales of new single-family homes climbed 12.5 percent in May to a record annual rate of 1.157 million units.
And the National Association of Realtors said sales of pre-owned homes jumped 1.2 percent in May to 5.92 million.
"Housing is the one economic sector that seems to be carrying the day while others struggle, and thank God for that," said Carl Tannenbaum, chief economist at LaSalle Bank in Chicago. "But how many laps can this particular runner go before it hands off the baton to another runner?"
The differing messages in the factory and housing data highlighted a dilemma for the Fed. Its most recent rate cut could well give an added push to the consumers sector and could help keep housing demand strong. Businesses, however, seem wary of investing, no matter how low borrowing costs fall.
"These housing numbers are just extraordinarily impressive," said Cary Leahey, at Deutsche Banc Alex. Brown in New York. "Buying a home is a big vote of confidence in the economy."
Wednesday's Fed rate cut was the 13th since early 2001. (Reuters)
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