Orders for Big-Ticket Items Rise Only 0.7%

U.S. durable goods orders were disappointingly weak last month, but hopes for America’s expansion remained on track as the Federal Reserve said the economy advanced in June.

The Commerce Department said Wednesday that orders for big-ticket items meant to last at least three years rose 0.7% after shrinking 0.9% in May. However, May’s drop was revised from a 1.8% decline.

Wall Street expected a much stronger rebound after two months of losses. Analysts had forecast a 1.9% rise, which would have given much fuller support to Fed Chairman Alan Greenspan’s recent assurance that the economy would pick up after hitting a temporary soft spot.

His outlook underpins expectations that the Fed will raise interest rates again at its next meeting Aug. 10 after it made its first move up in four years in June, lifting the federal funds rate a quarter of a percentage point to 1.25%.

The Fed’s “beige book” anecdotal economic report released Wednesday did not appear to challenge this view. It found that the U.S. economy moved ahead in June but the pace of growth varied around the country from “modest” to “solid.”

In the West, the Fed found that the economy continued to expand at a solid pace from early June through mid-July, although growth appeared to have slowed slightly. Manufacturing continued to expand, but at a slower pace than earlier this year.

Overall, the often volatile durables report fit with earlier signs that domestic demand fell from April to June. But analysts said the upward revisions to the May numbers meant the outlook for better growth was largely undamaged.

“The capital equipment recovery remains on track,” said Daniel Meckstroth, chief economist of Manufacturers Alliance/MAPI, an Arlington, Va.-based research group.

Analysts noted that a 0.7% rise in June shipments suggested solid second-quarter capital spending that would make a positive contribution to gross domestic product.

The initial reading of second-quarter GDP comes out Friday and is forecast to show that growth slowed to an annualized 3.6% pace from 3.9% in the first quarter.