Manufacturing data fuel US recession fears

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US manufacturing orders on Wednesday recorded their biggest decline in five months and new home sales slumped to a 13-year low, compounding fears that the US economy may be sliding into recession.

Orders for big-ticket manufactured items fell 5.3 per cent in January, exceeding economists’ expectations of only a 3.5 per cent decline. The disappointing headline result wiped out a revised 4.4 per cent increase in December, when buoyant aircraft sales had provided a boost to the figures.

New home sales declined 2.8 per cent to a 588,000 annual rate after December’s figures were revised fractionally higher. Consensus estimates for January were for a 600,000 annual rate. Meanwhile, inventories of unsold homes rose to the highest level since 1981.

The slew of data was discomforting for economists, some of whom have pinned hopes that the US economy can avoid a recession this year, in part, on expectations that business spending would hold up. The housing report also confounded nascent hopes that new home sales might show signs of stabilising.

John Ryding, chief US economist at Bear Stearns, said the “weak” durable goods orders helped erase “the more constructive picture painted by the December data”.

The durable goods figures followed a dire reading last week on the Philadelphia Federal Reserve manufacturing index, which also deteriorated unexpectedly.

Excluding transportation, durable orders fell a comparatively modest 1.6 per cent this month. However, this was still more than twice the expected decline.

There was mixed news concerning core capital goods orders, a key measure of business spending on machinery and equipment, which fell a modest 1.4 per cent, paring an upwardly revised 5.2 per cent gain in December. Core capital goods shipments rose 0.1 per cent.

“Business spending seems to be holding up in the wake of the credit crunch,” Paul Ashworth at Capital Economics, said. “All things considered, aside from the headline figure this isn’t actually a bad report.”

The housing data gave little cause for optimism as builders’ efforts to slash prices failed to attract more new buyers into the market. Apart from a small improvement in the west of the country, sales of new single-family homes fell across the United States. Inventories of unsold homes rose to 482,000, a 9.9 months supply, lengthening the road to recovery for US homebuilders.

A 4.3 per cent decline in the median sale price of new homes echoed Tuesday’s Standard & Poor’s/Case-Shiller home price index, which dropped 8.9 per cent in the final quarter of last year, the steepest decline in the 20-year history of the index.

On Monday, The National Association of Realtors said existing home sales in January fell for a sixth consecutive month to their lowest level in almost a decade.

In spite of the negative data, the S&P homebuilder index rose 1.4 per cent on Wednesday after regulators announced plans to lift caps on the investment portfolios of government sponsored mortgage agencies Fannie Mae and Freddie Mac.

“There can be no doubt at all that the housing market is suffering a catastrophic collapse. There is no sign yet that the bottom is near,” said Ian Shepherdson, chief US economist at High Frequency Economics.

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