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Economy Is Growing Steadily, Data Reveal

July 28, 2005|From Times Staff and Wire Reports

The U.S. economy is on a path of steady growth, data showed Wednesday, with business investment strong and the housing market showing continued vibrancy.

But one report, the Federal Reserve's "beige book" snapshot of regional business conditions, acknowledged evidence of a "slight cooling" in parts of the Southern California housing market.

The Commerce Department reported that orders for big-ticket manufactured goods posted a surprisingly strong 1.4% increase last month.

Sales of new single-family homes also beat forecasts, reaching a record annual pace of 1.37 million units in June, up 4% from May, the department said.

However, the median new-home price fell 5.5% to $214,800 in June, the second consecutive monthly decline.

Nonetheless, analysts said, the data reflect a vibrant economy and hint at a strong second-quarter gross domestic product report on Friday.

"What it means for the Fed is that it is further evidence that the economy is on a firm footing and they can continue their steady tightening of monetary policy," said Kevin Logan, an economist at Dresdner Kleinwort Wasserstein.

In its beige book report, the Fed said U.S. business activity continued to expand in June and early July, and overall price pressures eased or were flat in most places despite higher energy and building costs.

The Fed's survey showed a number of districts describing the current economic expansion as "solid," bolstered by further gains in manufacturing, strong auto and housing sales and rebounding tourism.

But in the San Francisco district, which includes Southern California, the Fed noted that while "the pace of home sales, price appreciation, and construction was rapid in most areas ... a few respondents reported evidence of slight cooling in parts of Southern California, where houses remained on the market longer and price appreciation slowed."

The 1.4% increase in durable goods in June followed a 6.4% surge in orders in May, which reflected a big increase in sales of commercial aircraft. After soaring by 167% in May, orders in this volatile sector fell by 24% in June.

Orders for new cars and auto parts edged down a slight 0.1% in June after having risen by 0.6% in May. Automakers, led by General Motors Corp., have brought back attractive incentive offers to reduce a backlog of unsold cars which had caused production cutbacks in recent months.

Excluding transportation, durable goods orders were up a solid 2.6% in June, nearly triple the 0.9% rise in orders outside of transportation in May.

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