US factory and housing data supports growth picture

However, upbeat picture is dimmed by other data showing sharp drop in consumer confidence as Americans worried about the impact of tighter fiscal policy

Orders for long-lasting US-made goods surged last month and home prices posted their biggest year-on-year gain in six-and-a-half years in January, the latest signs the economy regained momentum early in the first quarter.

But the upbeat picture was dimmed somewhat by other data on Tuesday showing a sharp drop in consumer confidence as Americans worried about the impact of tighter fiscal policy, particularly the $85 billion in government budget cuts known as the "sequester".

"The economy continues to expand in the first quarter, but we do have a drag from the sequester," said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh.

Durable goods orders jumped 5.7 per cent in February as demand for transportation equipment rebounded, the Commerce Department said. The rise in orders reversed January's 3.8 per cent plunge and handily beat economists' expectations.

While orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, posted their largest decline since July, the drop in demand in this so-called core capital followed a big jump in January and economists were largely unfazed.

"To the extent that the weakness in core capital goods orders was a partial retracement of the unsustainable big gains the month before, the constructive tone in business investment over the past few months remains largely intact," said Millan Mulraine, a senior economist at TD Securities in New York.

Shipments of core capital goods actually increased 1.9 per cent, leading some economists to bump up their forecasts for first-quarter economic growth.

JPMorgan raised its estimate by 0.4 percentage point to a 2.7 per cent annual rate, while Goldman Sachs upped its forecast by a tenth of point to 3 per cent. The economy expanded at an only 0.1 per cent pace in the fourth quarter.

Housing provides a lift
A strengthening housing market is also giving the economy a lift.

The S&P/Case Shiller composite index of 20 metropolitan areas rose 8.1 per cent in January from a year ago, its biggest rise since June 2006, a separate report showed.

It was the first time since March 2006 that all 20 metropolitan areas tracked by the index showed year-over-year price increases. On a month-on-month basis it rose 1 per cent on a seasonally adjusted basis.