U.S. economy shows strength

08/26/2014 5:37 PM

08/26/2014 5:38 PM

The U.S. economy is showing renewed momentum, with fresh data Tuesday suggesting strong demand by businesses for airplanes, machinery and other manufactured items as well as rising confidence among consumers, despite a cooling in the formerly robust housing market.

Overall orders for durable goods in July jumped by 22.6 percent, the biggest one-month increase since the Commerce Department began compiling this series of data in 1992. That strength, though, was exaggerated by a huge surge in demand for airplanes at Boeing.

Excluding the always-volatile transportation sector, core capital goods orders fell by 0.5 percent in July, but remain up more than 11 percent over the past three months on an annualized basis.

“The U.S. economy is on solid ground,” said Nariman Behravesh, chief economist at IHS. “Europe is struggling, Japan is struggling, but all of this suggests the U.S. is doing quite well.”

Europe has been hurt by the austerity policies in place across much of the continent, he said, noting that growth essentially stalled in the second quarter. Behravesh estimates that after a very weak first quarter the U.S. economy will grow at a rate of roughly 3 percent over the rest of 2014.

By contrast, he said, growth in Europe is running at under a 1 percent pace, while the Japanese economy is expanding at about 1.5 percent on an annualized basis.

A healthier job market and the recent surge in stocks, which has lifted the S&P 500 into record territory, has helped consumer confidence to rebound. On Tuesday, the Conference Board reported in its monthly survey that its main consumer confidence measure rose in August to its highest level since October 2007, before the start of the recession.

Although evidence of an upsurge in growth has sometimes worried investors because it could mean a sooner-than-expected increase in interest rates by the Federal Reserve, those fears have eased lately in the wake of the reassuring speech in Jackson Hole, Wyoming, last week by Janet L. Yellen, the Fed’s chairwoman.

The only weak spot in Tuesday’s flood of economic indicators was the housing market, where the S&P/Case-Shiller home price index registered a decline of 0.2 percentage point in June. Thirteen out of the 20 cities surveyed showed a fall in home prices, and the drop surprised economists, who had expected the index to remain flat in June. The Triangle is not among the areas included in the index.

“Housing has had a strong recovery in recent years and now it’s leveling off,” Behravesh said. “It won’t be the engine of growth that it’s been, but that’s not necessarily a bad thing. We can worry about soft housing prices, but there is no bubble in the making.”

Guy Berger, U.S. economist at RBS, added that after a strong performance in 2012 and 2013, homes aren’t as undervalued as they were previously.

“With rents going up in recent years, it became more favorable to buy,” Berger said. “The easy gains are behind us in terms of housing.”

More significant than any cooling in housing, he added, is that businesses are beginning to invest more aggressively again, citing the strong figures for durable goods orders Tuesday.

“The main takeaway from today’s data is that businesses spending is moving at a faster pace,” he said. “Some is catch up, and some is acceleration but it looks set to continue in the third quarter.”

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