By Lucia Mutikani
WASHINGTON (Reuters) - Orders for long-lasting manufactured goods rose more than expected in May and a gauge of planned business spending increased for a third straight month, the latest signs of a pick-up in economic activity.
The growth picture was further brightened by other data on Tuesday showing existing single-family home prices recorded their biggest gain in seven years in April. The housing market recovery is softening the blow on the economy from tight fiscal policy.
The reports suggested the economy was pulling out of a soft patch hit early in the second quarter and they were supportive of the Federal Reserve's view that risks to the economy's outlook have lessened.
Durable goods orders increased 3.6 percent as demand for goods ranging from aircraft to machinery rose, the Commerce Department said. Orders for these goods, which range from toasters to aircraft, had risen 3.6 percent in April.
Economists polled by Reuters had expected orders to rise 3.0 percent last month. Orders excluding transportation increased 0.7 percent after advancing 1.7 percent in April.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.1 percent. Orders for the so-called core capital goods had increased 1.2 percent in April and economists had expected a 0.3 percent gain last month.
"It points to further upside momentum for business capital investment activity," said Millan Mulraine, a senior economist at TD Securities in New York.
"It also signals increased confidence among the business community about the sustainability of the economic recovery - which could itself become self-fulfilling."
Core capital goods shipments, used to calculate equipment and software spending in the gross domestic product report, rebounded 1.7 percent. That followed a 2.0 percent drop in April.
The increase in shipments of core capital goods pointed to moderate growth in business spending on capital equipment.
A separate report showed the S&P/Case Shiller home price composite index of 20 metropolitan areas increased 1.7 percent on a seasonally adjusted basis in April.
Prices in the 20 cities accelerated 12.1 percent from a year ago, largest rise since March 2006.
U.S. stock index futures rose on the data, while prices for U.S. Treasury debt fell. The dollar rose against the euro.
HOUSING BOOSTS CONFIDENCE
"Home prices going up is very important for consumer confidence," said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York. "A recovery in home prices is exponentially more important than the recent pullback in stock prices."
The housing recovery has been marked by declines in the inventory of homes for sale and soaring prices, helping to boost consumer confidence and making Americans less fearful about spending on big-ticket items.
It is also lifting revenues for builders like Lennar Corp, the No. 3 U.S. homebuilder. Lennar reported a stronger-than-expected 53 percent rise in second quarter revenue on Tuesday.
"Our second-quarter results together with real-time feedback from our field associates continue to point towards a solid housing recovery," Chief Executive Stuart Miller said in a statement on Tuesday.
Gains in housing are also supporting factories, despite a slowdown in global demand.
Manufacturing output ticked up in May and regional factory surveys released so far have shown some strength in June.
Last month, demand for transportation equipment rose 10.2 percent, buoyed by a surge in orders for civilian aircraft.
Boeing received orders for 232 aircraft, up from 51 in April, according to information posted on its website. Orders for motor vehicles, however, fell 1.2 percent after rising 2.4 percent.
Outside transportation there were gains in orders for machinery, computers and electronic products, primary metals and electrical equipment, appliances and components.
Other details of the report we also supportive of manufacturing. Unfilled orders for durable goods rose 0.8 percent and were up by the same margin excluding transportation. Overall shipments of durable goods rebounded 1.2 percent after falling 0.6 percent in April.
Stocks of unsold durable goods edged up 0.1 percent, which should help the sector in the long run.
(Reporting by Lucia Mutikani, additional reporting by Leah Schnurr and Richard Leong in New York; Editing by Andrea Ricci)