Durable Goods Demand Shows Economic Growth

Demand for a range of long- lasting manufactured goods recorded their largest gain in six months in September, cementing views of a step-up in economic growth in the third quarter and suggesting the year's final quarter started with some momentum.

The Commerce Department said on Wednesday durable goods orders excluding transportation rose 1.7 percent after falling by a revised 0.4 percent in August.

The rise beat economists' expectations for a 0.4 percent increase after a previously reported 0.1 percent dip.

But a drop in demand for transportation equipment as bookings for motor vehicles and civilian aircraft declined pulled down overall orders 0.8 percent.

That followed a 0.1 percent dip in August and was in line with economists' expectations for a 0.9 percent fall.

Demand for big ticket items seems to be alive and well, said John Ryding, chief economist at RDQ Economics in New York. Outside of the volatile transportation sector, the gains in durable goods orders were broad based and point to a manufacturing sector that continues to expand at a solid rate.

U.S. stock index futures held their gains, while prices for Treasury debt were lower. The dollar was down versus the euro.

Transportation orders fell 7.5 percent, the largest decline since April.

Orders for motor vehicles and parts fell 2.7 percent, while civilian aircraft bookings tumbled 25.5 percent. Boeing received only 59 aircraft orders, according to the plane maker's website, down from 127 in August.

The tenor of the report was further strengthened by a 2.4 percent jump in non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending.

That was the largest increase since March and offset a downward revision to August's increase.

The details of the durable goods report were quite constructive, pointing to building momentum in business capital investment going forward, said Millan Mulraine, senior macro strategist at TD Securities in New York.

Shipments of non-defense capital goods excluding aircraft, however, fell 0.9 percent after rising 3.1 percent in August.

Still, the report was more evidence that economic activity picked up in the third quarter after a weak first half.

U.S. gross domestic product grew at an annual pace of 2.5 percent in July through September period, according to the median of a Reuters poll. That would mark a sharp step-up from the 1.3 percent logged in the second quarter.

Although manufacturing has slowed in recent months, the September durable goods report pointed to underlying resilience.

Details of the report, outside transportation were fairly upbeat, with orders for machinery, primary metals, electrical equipment and computers and electronic products rising solidly.

Unfilled orders increased 0.8 percent last month and inventories barely rose, indicating factories will remain busy for a while.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)