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U.S. economic data leaves Fed expectations intact

Demand for long-lasting U.S. manufactured goods, excluding aircraft, unexpectedly fell last month and a key gauge of business capital spending plans also eased, underscoring the economic recovery's tepid pace.

 

Another report from the Commerce Department on Wednesday showed new home sales rose 6.6 percent last month, but still remained at depressed levels, leaving intact expectations in financial markets that the Federal Reserve would ease monetary policy further next week.

 

Overall orders for durable goods jumped by a more than expected 3.3 percent, the largest increase since January, lifted by a surge in aircraft bookings. They had dropped 1 percent in August and economists had expected a 2 percent increase in September.

 

However, orders excluding transportation fell 0.8 percent after increasing 1.9 percent in August as bookings for communications equipment dropped steeply, the department said.

 

Economists, who track this core figure closely, had expected a 0.5 percent gain.

 

"We're not seeing the kind of upswing in the data that would lead us to believe the Fed is not going to carry out large-scale asset purchases," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.

 

FED MOVE STILL EXPECTED

 

The U.S. central bank, which has already bought about $1.7 trillion US worth of Treasury and mortgage-related debt, is expected to launch a second round of asset purchases next week to drive borrowing costs down further and stimulate spending.

 

The Fed's decision will be announced a day after Tuesday's congressional election, which is widely seen as a referendum on President Barack Obama's performance on the economy. His Democratic Party is seen facing large losses.

 

In its second report, the department said new homes rose to a 307,000 unit annual rate from a 288,000 unit pace in August.

 

Economists had forecast new home sales rising to a 300,000 unit pace last month.

 

U.S. financial markets were little moved by the data as investors tried to gauge the magnitude of the widely anticipated second round of monetary stimulus.

 

Stocks on Wall Street traded lower, while prices for longer-dated U.S. government debt were down. The U.S. dollar firmed against the euro and the yen.

 

The durable goods orders report supported recent evidence of cooling in the manufacturing sector, which has been leading the economy's recovery from the worst recession in seven decades.

 

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, slipped 0.6 percent in September after a 4.8 percent increase in August, the department said. Markets had expected a 0.8 percent gain.

 

"Overall, these figures suggest that the industrial recovery is nearing an end. Without it, the overall economy is going to struggle," said Paul Dales, a U.S. economist at Capital Economics in Toronto.

 

Last month, overall durable goods orders were boosted by a 105 percent surge in non-defense aircraft and parts, more than reversing a 30 percent plunge in August.

 

Boeing received 117 orders for aircraft in September, a huge jump from 10 bookings the prior month, according to information posted on the plane maker's website.

 

The report also showed durable goods inventories rose for the ninth straight month in September. Shipments, which go into the calculation of gross domestic product, were down for the second consecutive month.

 

The housing is market regaining some balance after a slump in activity following the end of a tax credit for home buyers.

 

Data this week showed sales of previously owned homes increased in September, though they remained near depressed levels.

 

Applications for loans to buy homes increased last week, a separate report from the Mortgage Bankers Association showed.

 

The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, rose 3.9 percent.

 

Last month, the number of new homes available for sale dropped 1 percent to 204,000 units, the lowest level since July 1968. September's sales pace left the supply of new homes on the market at 8.0 months' worth, down from 8.6 months' worth in August.

 

The median sale price for a new home rose 1.5 percent from August to $223,800, the highest since May. Compared to September last year, prices rose 3.3 percent.

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