Star-Bulletin news services
Durable goods and
homes spur growth
U.S. factories received more orders for durable goods in May and homes sold at a near-record pace, evidence the economy is bounding ahead, economists said in advance of reports this week.
A Commerce Department report will show that bookings for machinery, computers and other goods made to last three or more years rose 1.5 percent in May, the third increase in the last four months, according to the median forecast in a Bloomberg News survey of economists. Combined sales of new and existing homes probably reached a 7.625 million annual pace, the fourth-highest ever, separate surveys showed.
Improving sales are pushing factories to boost production and hire more workers. The rise in demand is leading to higher profits and enabling businesses to invest in new equipment. Corporate spending will ensure the economy keeps growing in the second half of the year, economists said.
"The economy is growing at a fairly firm pace and creating a lot of jobs," said Jan Hatzius, a senior economist at Goldman, Sachs & Co. in New York. "The backdrop for continued business spending is very favorable."
Excluding transportation equipment, orders for durable goods probably rose 1.3 percent, the fifth increase in the last six months, following a 2.6 percent drop in April, the Commerce Department report, due Thursday, is also expected to show. Total orders probably rebounded following a 3.2 percent decline.
"We will continue to ramp up as the market demands," said Bruce Hertzke, chief executive at Winnebago Industries Inc., the largest U.S. maker of motor homes in an interview Friday. "We are pretty optimistic about long-term growth opportunities."
Production
Hertzke said the company may be able to boost production at its Charles City, Iowa, plant to 4,000 recreational vehicles a year from 3,500 currently and may need to add a second shift to meet increased demand."We are still currently hiring every week," he said.
Forest City, Iowa-based Winnebago said last week that profit for the quarter ended May 29 surged 90 percent as sales of diesel-powered vehicles more than doubled.
New homes probably sold at a 1.125 million annual pace last month compared with 1.093 million in April, according to the median estimate of economists polled ahead of another Commerce Department report Thursday.
On Friday, the National Association of Realtors is forecast to report purchases of previously owned homes totaled 6.5 million at an annual rate compared with 6.64 million in April.
Housing
Combined sales of new and existing homes reached a record 7.807 million annual rate in September 2003."We do expect demand to remain strong," said Jeffrey Mezger, chief operating officer of KB Home, the seventh-largest U.S. homebuilder by stock market value, in an interview Thursday. "With the trends right now in traffic and sales, there's nothing really giving us any indication that it will slow down in the short run."
Some economists forecast higher interest rates to slow demand for housing by making mortgage payments more expensive. The rate on a 30-year fixed rate mortgage rose to 6.32 percent last week, almost a percentage point higher than in March as investors bet Federal Reserve policy makers will raise their benchmark interest rate to help forestall inflation.
Borrowing costs
"In the second half of the year, we will see a little bit of softening in the interest-sensitive sectors" of the economy, such as housing, said Goldman's Hatzius.Homebuilding executives disagree because they expect prospective owners to be able to afford the higher payments as hiring increases and the economy strengthens.
"Rising interest rates in the face of a growing and positive economic trend and in the face of growing job growth is likely to continue to fuel a housing market that remains strong," said Stuart Miller, chief executive of Lennar Corp., the nation's largest homebuilder, in an interview Wednesday.
The number of first-time claims for unemployment insurance suggests the economy is still adding jobs this month, according to Sherry Cooper and other economists.
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