Lackluster economy

- Orders for big ticket items smaller than expected, while business investment sinks.

By Martin Crutsinger

The Associated Press

WASHINGTON Orders to factories for big-ticket manufactured goods posted a disappointing increase in February that raised new worries about the strength of the economy.

Demand for durable goods increased by 2.5 percent in February, the Commerce Department reported Wednesday. It was a weaker-than-expected rebound from a huge 9.3 percent drop in orders that occurred in January.

In the new reports, analysts were especially concerned about continued weakness in business investment, which fell by 1.2 percent in February, the fourth decline in the past five months.

This category, which covers non-defense capital goods excluding aircraft, is viewed as a proxy for business plans to expand and modernize.

If business spending falters significantly, it could raise the risk of a recession in an economy already struggling from a sharp slowdown in housing.

Stephen Stanley, chief economist at RBS Greenwich Capital, said he had trimmed his estimate for economic growth in the current January-March quarter to 2.2 percent, matching the lackluster performance of the final three months of last year.

He called the weakness in business investment "puzzling" and said it may have been influenced by winter storms last month.

But other analysts said it could be an indication that businesses are cutting back on plans to expand and modernize in the face of an economic slowdown that has now lasted 12 months.

"Unfortunately, this comes at the worst time for the economy as (business investment) was expected to provide some offset to the steady contraction in housing," said Michael Gregory, senior economist at BMO Capital Markets.

Federal Reserve Chairman Ben Bernanke said Wednesday that the Fed still expected business investment to grow at a moderate pace this year, but he said there was a risk that recent weakness in business investment will persist.

"Thus far, the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant degree to other sectors of the economy," Bernanke told members of the Joint Economic Committee.

He said the economy should continue expanding at a moderate pace in coming quarters, but he cautioned that this forecast faced "a number of risks." They include the threat that the housing correction could be more severe than expected, possibly aggravated by problems beginning to emerge in subprime mortgage lending.

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