Durable goods report shows economic recovery weakening

Orders for durable goods in the U.S. increased less than forecast in July, the Commerce Department reported Wednesday.

Bookings for goods made to last at least three years rose 0.3 percent. Excluding transportation equipment, demand fell by the most in more than a year. Purchases of new dwellings fell 12 percent to an annual pace of 276,000, the weakest since data began in 1963, figures from the same agency showed.

The reports show capital spending, one of the few bright spots in a weakening economic recovery, is slowing as the second half begins.

The median estimate of 75 economists surveyed by Bloomberg News projected orders for durable goods would rise 3 percent. Estimates ranged from gains of 1.2 percent to 6.8 percent. Bookings excluding transportation equipment dropped 3.8 percent, the most since January 2009. The survey median projected a 0.5 percent gain.

Wednesday's report showed demand for nondefense capital goods excluding aircraft, a proxy for future business investment, dropped 8 percent after climbing 3.6 percent in June, more than previously estimated. Over the past three months, these orders climbed at a 20 percent annual pace, down from a 31 percent gain in the three months to June, signaling companies will rein in investment. Shipments of those items, used in calculating gross domestic product, decreased 1.5 percent after rising 1 percent in June, also more than estimated last month.

While these categories tend to slacken early in a quarter, "the capital spending implications still look atrocious," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in Manhattan.

"The downshift in the pace of capital spending is particularly worrying as this was the strongest, most reliable sector of the economy over the past year," he said.

- Bloomberg News