U.S. Economy in good shape During July

American businesses increased spending in July and the housing industry showed signs of stability before this month's financial-market rout.

Orders for durable goods climbed 5.9 percent, more than forecast and the most since September, the Commerce Department reported today in Washington. Separate figures from the department showed sales of new homes unexpectedly rose 2.8 percent to an annual pace of 870,000 in July.

The economy's relative strength provides a contrast to the sudden contraction in credit that roiled financial markets in August, which the Federal Reserve said raised the risk of a slowdown ``appreciably.''

``Even though there could be some reduction in that momentum in August, we're starting from a stronger point rather than a weak point,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. ``I don't think it affects the path we are on in terms of moving into a period where growth is still going to be relatively slow.''

His forecast of a 6 percent increase in orders for durable goods, those products meant to last several years, was the closest to the reported figure among 73 economists surveyed by Bloomberg News. Analysts had anticipated orders would rise 1.0 percent, the median estimate in the survey.

Stocks gained after the reports. The Dow Jones Industrial Average advanced 69.75 points to 13,305.7 at 12:40 p.m. in New York. The yield on 10-year Treasury notes was little changed at 4.63 percent.

Fed Caution

Home sales are likely to show renewed weakness as turmoil in credit markets pushes some mortgage lenders out of business and prompts others to tighten requirements for loans. The Fed, which cut its discount rate last week and signaled it's prepared to lower its benchmark rate, predicts the worst housing slump in 16 years will restrain economic growth.

``Call me a skeptic here, but I'm going to need to see a couple more months before I believe this is something that's really happening'' in new home sales, said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``Lending standards have gotten tighter and so this should weigh on the housing numbers near-term. Maybe it wasn't showing up in July, but for August and September it will.''

Economists forecast today's figure would total 820,000 from a previously reported 834,000 pace in June. Predictions ranged from 770,000 to 860,000.

Compared with a year ago, purchases were down 10 percent in July.

House Prices

The median price of a new home rose 0.6 percent from a year ago to $239,500 last month, today's report showed. Inventories of unsold homes dropped to 7.5 months at the current sales pace.

The number of homes for sale at the end of the month declined to 533,000 in July, from 538,000 a month earlier. The number of places that are completed and waiting to be sold fell by 4,000 to 175,000.

Investors and many economists expect the central bank to cut the main rate, for overnight loans between banks, by at least a quarter point to 5 percent at or before the next meeting, on Sept. 18. Richmond Fed President Jeffrey Lacker said this week that the impact of ``financial turbulence'' on the broader economy will determine the Fed's decisions.

``If you take these two reports together it just adds a little bit more credence to the FOMC members who have seemed to be saying there are strong economic fundamentals and we're not going to lower the Fed Funds rate until we see pressures show up in the data,'' said Riccadonna.

Appetite for Aircraft

Orders for commercial aircraft jumped 12.6 percent in July after rising 37.1 percent a month earlier. Demand for autos rose 9.8 percent, the biggest increase since January 2003, after declining 0.7 percent the prior month.

Boeing Co. registered 149 orders in July, up from 132 in June, according to company statistics released earlier this month. It shipped 33 planes, compared with 39 a month earlier.

Chicago-based Boeing Co. on July 25 said its quarterly profit and sales exceeded analysts' estimates and the planemaker raised its earnings forecast for the year on record orders.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, rose 2.2 percent after decreasing 0.1 percent in June. Shipments of those items, used in calculating gross domestic product, rose 0.5 percent after declining 0.8 percent.

Unfilled orders for such goods rose 1.5 percent.

Strength in Manufacturing

Other reports signal manufacturing continues to grow. Manufacturing expanded for the six months through July, rising at the fastest pace in June in 14 months, according to the Tempe, Arizona-based Institute for Supply Management.

Inventories of all durable goods rose 0.1 percent, after no change in June.

The gain in ex-transportation orders was led by rising demand for communications gear, machinery and primary metals. Defense equipment orders also rose.

Demand excluding military gear rose 4.9 percent in July after rising 2.3 percent in June.

Frank MacInnis, chief executive officer of Norwalk, Connecticut-based EMCOR Group Inc., a leading installer of electrical and mechanical building systems, said capital spending remained on a steady trajectory, even in the face of the credit-market turmoil.

``It looks like corporate spending plans remain unimpaired for the time being,'' MacInnis said in a telephone interview. ``That speaks to the overall health of both the domestic economy and the remarkable strength of the world economy.''

Declining Inventories

Manufacturers continue to ramp up output after working off excess inventories built up late last year. Growth in industrial production, fueled by rising exports and increased business spending, is likely to outpace overall growth in the economy that may average about 2.5 percent in the second half, according to forecasts.

Stepped-up production of equipment and software, a gauge of business investment, contributed 0.2 percentage point to growth in the second quarter after being flat in the first quarter and dragging on growth in the second half of 2006.