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US economy looks weaker, confidence dims

July 27, 2012
By CHRISTOPHER S. RUGABER , THE ASSOCIATED PRESS

WASHINGTON - Businesses placed fewer orders for most long-lasting manufactured goods in June, suggesting many are losing confidence in the slumping U.S. economy.

The housing recovery also lost some momentum last month as fewer Americans signed contracts to buy homes. A third report Thursday showed applications for unemployment benefits plunged last week - normally a good sign. But economists quickly dismissed the decline, saying fewer temporary auto layoffs distorted the figure.

The latest data added to worries that growth in the April-June quarter could be sharply lower than at the start of the year. The government will issue its first of three estimates for second-quarter growth on Friday.

Article Photos

AP?PHOTO
In this June 19 photo, washing machines sit on display on a showroom floor at a Lowe's store in Atlanta. Companies cut back on orders for long-lasting U.S. factory goods last month, outside volatile aircraft and other transportation equipment. The decline suggests businesses are losing confidence in the economy. Orders for durable goods rose a seasonally adjusted 1.6 percent in June from May, the Commerce Department said Thursday.

"It looks like the corporate sector is starting to lose confidence in the economy," said Ethan Harris, co-director of global economics at Bank of America Merrill Lynch, said.

The most alarming sign Thursday was a report from the Commerce Department on business orders for durable goods, items expected to last at least three years.

While overall orders rose 1.6 percent in June from May, the increase was driven mostly by a surge in volatile aircraft orders.

When excluding aircraft and other transportation equipment, orders fell 1.1 percent - the third decline in four months. And orders for so-called core capital goods, which indicate business investment plans, dropped 1.4 percent, also the third decline in four months.

Businesses placed fewer orders for industrial machinery, computers, and autos in June.

Manufacturing has helped drive growth since the recession ended three years ago. But it has slowed in recent months, along with the broader economy.

The report on durable goods "is just another number confirming how weak the second quarter was," Harris said.

Economists expect growth slowed in the April-June quarter to an annual rate of only 1.5 percent, according to a survey by FactSet. That's down from 1.9 percent in the first three months of the year.

But Harris says that may be too optimistic. He expects growth of only 1.1 percent. And he believes the economy will remain sluggish for the rest of the year.

Europe's financial crisis has lowered demand for U.S. exports. And the pending expiration of several U.S. tax cuts at the start of next year, along with scheduled spending cuts, may be weighing on growth.

Many U.S. companies may postpone large investment plans until the outlook for those two issues improves, he said.

"Why am I going to make a big capital spending decision, when I know that in a few months the economy could take a big hit?" Harris asked. Some economists forecast that the looming U.S. budget crisis could shave several points from next year's growth.

 
 

 

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