WASHINGTON -- Three economic reports released yesterday provided fresh evidence that the economy is headed into recovery, reinforcing market expectations that no changes in monetary policy will emerge from next week's meeting of the Federal Open Market Committee.
The Commerce Department reported that new orders to U.S. factories for manufactured durable goods surged in May for the second month in a row. Meanwhile, the Conference Board said consumer confidence edged up in June, and the National Association of Realtors reported that existing home sales rose in May to their highest level in more than a year.
"The Fed clearly isn't going to ease any further," said Mark Zandi, an economist with Regional Financial Associates in West Chester, Pa. "Monetary policy will remain neutral for the coming months." Fed officials have already said they believe the recession is over and that U.S. output is likely to rise in the months ahead.
According to the Commerce Department report, durable goods orders in May jumped 3.8% to a seasonally adjusted $120.5 billion, the biggest monthly advance in 14 months. The increase was greater than most analysts expected and followed a revised increase of 3.6% in April orders, providing two months of solid gains.
The rise in May orders came on increases in most major industries, led by an 11.5% gain in automobiles and other transportation equipment, while industrial machinery and primary metals industries posted gains for the second month in a row. Only electronics and electrical equipment fell, but the decrease followed a large gain in April.
The durable goods figures are often skewed by the volatile components of transportation and defense orders. However, when transportation is excluded from the May data, an increase of 1.4% still remains, and excluding defense leaves a rise of 2.5%.
Federal Reserve Board Chairman Alan Greenspan is known to pay close attention to the durable goods statistical series, which economists view as a sign of future capital spending by business.
Analysts at Manufacturers Hanover Securities Corp. were cautious about the Commerce report, saying the rise in orders could just reflect a rebuilding of inventories after several quarters in which businesses drew down stocks quite sharply.
"Even so," the analysts told clients in a marketed letter, "the strength evident in today's report will be a topic of discussion at next week's FOMC meeting, solidifying support for leaving policy unchanged."
The Conference Board, a business research organization, said its index for consumer confidence this month rose to 78.0 from 76.4 in May. The latest reading was still below the post-Gulf war high of 81.1 in March but marked another step away from the low of 55.1 recorded in January, when U.S. forces began bombing Iraq. The index is calculated on a base of 100 set in 1985.
All the improvement in the June index came on more optimistic expectations for the months ahead, while people's views on current conditions fell for the 10th consecutive month. Many of those surveyed expressed worries about the job market, and buying plans for automobiles and major household appliances were down.
"The index is still at a level that is historically associated with a sluggish economy," said Fabian Linden, who conducted the Conference Board survey. "The silver lining in the June confidence readings is the public's more positive view of things to come. Consumer expectations have an impressive record of foretelling our future fortunes."
"While the economy is rebounding, there are a lot of soft spots out there," said Laurence H. Meyer, a private economist and forecaster in St. Louis. "I think it's going to be a pretty substandard recovery."
Sales of existing single-family homes jumped 6.0% in May, to a seasonally adjusted annual rate of 3.51 million from 3.31 million units in April -- the fourth monthly increase in a row, the realtors reported. Harley E. Rouda, president of the realtors' association, said low mortgage rates and increased consumer confidence fueled the rise in sales.
All regions except the Northeast recorded sale increases, the realtors said. The median sales price in May was 95,200, down 0.6% from 100,300 in April but up 4.7% from a year earlier.