US durable goods orders beat expectations in April

WASHINGTON, May 23 Reuters reported that U.S. orders for costly manufactured goods shot up past expectations in April, driven by the biggest rise in auto demand in more than three years, the government said on Thursday in a report which also showed a pickup in crucial business spending.

Orders for computer equipment and machinery made solid gains, indicating that businesses are starting to make new investments -- a development regarded by economists as critical to a sustained economic recovery.

"It is a much stronger report than the consensus was looking for but it was stronger for all the right reasons," said Mark Vitner, economist at Wachovia Securities in Charlotte, N.C.. "We saw a pick-up in business investment spending which has been the one weak link in the economy."

Orders for durable goods, items intended to last for three years or more, rose 1.1 percent to $176.6 billion in April, trouncing analyst expectations for a 0.4 percent increase. That compared to an upwardly revised climb of 0.2 percent for the previous month.

The dollar strengthened against other currencies on the report and Treasury bonds were softer.

AUTOS DRIVE GAINS

Demand for motor vehicles and parts led the way with a surge of 12.0 percent, the largest increase since a 17.2 percent rise in August 1998.

Most North American car plants are running on overtime because of high demand due to attractive financing incentives, which make the most of low interest rates, and also because dealerships are building up their inventories of cars and trucks ahead of the summer selling season. General Motors said it will add a shift of workers at plants in Ontario and Michigan to keep up with the demand.

The report lends weight to Federal Reserve Chairman Alan Greenspan's assertion in April that there were signs of a revival in business spending.

Computers and electronic products were in hot demand, rising 2.5 percent, the steepest gain since last October. Machinery orders climbed 4.0 percent. In the March report, machinery orders fell while computer orders rose only slightly, leading some analysts to question the Fed chairman's claim.

"I do think there are reasons to believe that capital spending is starting to improve," Minneapolis Fed President Gary Stern told Reuters in an interview on Thursday, calling the durable goods rise in April "quite positive."

However, he cautioned that a broad-based expansion in business spending could be some quarters away.

A sharp fall in aircraft orders pulled down the transportation equipment category in April. Excluding transportation, the overall number rose 2.9 percent, far exceeding expectations of a 0.9 percent rise. Stripping out defense, orders were up a whopping 3.4 percent.

Even though the numbers were a surprise, analysts said the news was likely to have little impact on decision-making by Fed policymakers.

"I think the Fed probably still wants to see improvement in the employment data so I wouldn't expect any imminent move from the Fed with these numbers," said Henry Willmore, chief U.S. economist at Barclays Capital Group, New York.

The Fed's rate-setting committee is next due to discuss policy at a meeting on June 25 and 26.