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 The economy, however, has not completely lost its luster. Consumer
confidence hit a five-month high in January and house prices posted
their biggest year-on-year gain in almost eight years in November,
other reports showed on Tuesday.
"This isn't news that says the economy has lost upward momentum. It
is steady as she goes for the economy," said Chris Rupkey, chief
financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
Durable goods orders dropped 4.3 percent in December, weighed down
by weak demand for transportation equipment, primary metals,
fabricated metal products, computers and electronic products and
capital goods.
Last month's decline was the largest since July and reversed
November's revised 2.6 percent rise.
Economists polled by Reuters had expected orders for durable goods — items from toasters to aircraft meant to last three years or more — to rise 1.8 percent in December after November's previously reported
3.4 percent advance.
The report put a wrinkle on the economy's outlook, which had been
bolstered by upbeat data on consumer spending and industrial
production, and it raised concerns of slower growth in the first
quarter.
Those concerns, however, were tempered by the rise in consumer
confidence and house prices.
The Conference Board said its index of consumer attitudes rose to
80.7 this month from 77.5 in December. January's reading was the
highest since August and reflected rising optimism among households
about the labor market and business conditions.
Separately, the Standard & Poor's/Case Shiller gauge of house prices
in 20 metropolitan areas increased 13.7 percent in November from a
year ago, the largest rise since February 2006.
"Things have continued to look good at the end of 2013 and beginning
of 2014," said Gus Faucher, a senior economist at PNC Financial
Services Group in Pittsburgh. "I would expect that we are going to
continue to see growth this year that's above what we observed in
2014."
Stocks on Wall Street were trading up in the aftermath of the data.
The dollar rose against a basket of currencies, while U.S. Treasury
debt prices were marginally weaker.
The mixed batch of data came as officials from the Federal Reserve
were due to start a two-day policy meeting.
The Fed in December give the economy a vote of confidence with an
announcement that it would start dialing back its monthly bond
purchases this month. It is expected announce further cuts to the
bond-buying program on Wednesday.
FACTORY ACTIVITY COOLING?
Durable goods orders fell last month despite a strong rise in
aircraft orders at Boeing. The company had reported receiving orders
for 319 planes last month compared with 110 in November.
Orders may have dropped because the model used by the government to
iron out seasonal fluctuations likely anticipated a big increase in
aircraft orders in December anyway.
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Excluding transportation, orders fell 1.6 percent, the biggest
decline since March, after edging up 0.1 percent in November.
While durable goods data is volatile, details of the report could
support views that factory activity will cool off early this year
after output grew at its fastest pace in nearly two years in the
fourth quarter.
Non-defense capital goods orders excluding aircraft, a closely
watched proxy for business spending plans, fell 1.3 percent after
rising by a revised 2.6 percent in November.
Economists had expected orders for these so-called core capital
goods to increase 0.5 percent in December after a previously
reported 4.1 percent surge in November.
Shipments of core capital goods, which are used to calculate
equipment spending in the government's measure of gross domestic
product, slipped 0.2 percent last month.
They had increased 2.3 percent in November, with farm machinery
accounting for much of the rise.
"These data will throw some cold water on the widespread optimism
regarding capital spending," said Michelle Girard, chief economist
at RBS in Stamford, Connecticut.
While the decline in shipments suggests a less sturdy pace of
equipment spending in the fourth quarter, that was offset by a solid
rise in inventories, indicating a fairly strong fourth-quarter GDP
reading.
Durable goods inventories increased 0.8 percent last month, pushing
the inventory-to-shipments ratio to an eight-month high.
"Real inventories now look to have been accumulated at a heady $132
billion annual pace last quarter — an unsustainably strong rate
which should pose some headwinds for growth in the early part of
this year," said Michael Feroli, an economist at JPMorgan in New
York.
The government will release its advance fourth-quarter GDP report on
Thursday. The economy likely grew at a 3.2 percent annual pace in
the fourth quarter, according to a Reuters survey of economists,
after expanding at a 4.1 percent rate in the prior period.
(Reporting by Lucia Mutikani; additional
reporting by Rodrigo Campos in New York; editing by Chizu Nomiyama)
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