Latest Data Show Volatile Economy Took a Few Steps Back

Orders for durable goods such as aircraft and electronics fell unexpectedly in August, while sales of new homes rose less than expected, renewing concerns about whether the economy can sustain a recovery with consumer spending held back by job losses, tight credit and falling home values.

Still, economists said the figures -- which follow weaker-than-expected data Thursday on existing home sales -- also reflect a volatile economy emerging from the worst recession since the 1930s. U.S. stock markets closed lower Friday, with the Standard & Poor's 500-stock index slipping 0.6 percent to 1044.38.

"No one said this would be a smooth recovery," Benjamin Reitzes, an economist at BMO Capital Markets, wrote in a note to clients. "The data will likely continue to improve in fits and starts."

The Commerce Department said Friday that orders for durable goods dropped 2.4 percent in August, after rising a revised 4.8 percent in July. Economists had expected a 0.5 percent increase, according to a survey by Thomson Reuters. It was the second drop in three months in orders for goods expected to last at least three years.

A category known as "non-defense capital goods, excluding aircraft," a gauge of business investment in machinery and other items, fell 0.4 percent, its second straight drop. It fell 1.3 percent in July. Some economists said they were concerned that the two straight declines show businesses aren't confident enough in the recovery to boost their investment in equipment.
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Orders for commercial aircraft and parts, an especially volatile category, sank 42.2 percent in August after nearly doubling in July. Excluding aircraft and other transportation goods, orders were flat in August -- below analysts' expectations of a 0.5 percent rise. Transportation goods orders dropped 9.3 percent.

Autos and auto parts orders posted a 0.4 percent gain in August, after rising 1.6 percent in July, according to the government data. The sector received a major boost last month from the Cash for Clunkers program, which gave consumers rebates of up to $4,500 for trading in older cars for newer, more fuel-efficient models. The program, which ended last month, boosted auto sales 30 percent in August.

Several other categories posted weak results. Orders for computers and electronic products dropped 0.7 percent, after rising for two straight months. Electrical equipment and appliance orders fell 0.5 percent, after jumping 4.2 percent in July.

The Commerce Department also said new U.S. home sales inched up 0.7 percent last month to a seasonally adjusted annual rate of 429,000 from a downwardly revised 426,000 in July. Economists had expected a pace of 440,000. Sales have risen 30 percent from the bottom in January, but are off about 70 percent from the peak of four years ago.

The report was the second disappointing sign this week for the housing market. The National Association of Realtors on Thursday said sales of previously occupied homes, which make up most of the market, dipped 2.7 percent last month.

Builders continue to make severe cuts in prices to attract buyers. The median sales price of $195,200 was 9.5 percent below July's $215,600. That was the largest monthly drop on records dating to 1963.