July 27 (Bloomberg) -- Orders for U.S.-made durable goods rose more than forecast in June, pointing to momentum in manufacturing that's likely to keep the economy growing as the housing market sputters.

The 3.1 percent jump in orders for goods made to last at least three months followed a revised 0.3 percent gain the month before, the Commerce Department said today in Washington. It also said new home sales dropped to a three-month low and the median price increase was the smallest in more than two years. In a separate report from the Labor Department, initial jobless claims unexpectedly fell.

The figures suggest businesses are confident enough in the economy's prospects to invest in new equipment and retain employees. Manufacturing's strength may partially compensate for weaker retail sales and a softer housing industry, which the Federal Reserve said yesterday is restraining growth.

``The economy is still performing reasonably well,'' said Michael Moran, chief economist at Daiwa Securities America inc. in New York. ``The housing market is definitely slowing, but the drop is not precipitous enough to do serious damage.''

Purchases of new dwellings dropped 3 percent during the month to an annual pace of 1.131 million from a revised 1.166 million rate in May that was slower than first reported. The median price rose 2.3 percent from a year ago, the least since December 2003.

`Challenging Period'

Builders Beazer Homes USA Inc. and M/I Homes Inc. today reduced earnings forecasts, citing lower sales and what Beazer Chief Financial Officer called a ``more challenging period'' than anticipated. Pulte Homes Inc., the largest U.S. homebuilder by stock market value, cut its profit projection yesterday.

Overall orders for durable goods are often swollen by bookings for commercial aircraft, which are volatile. Excluding transportation equipment, durable goods orders rose 1 percent after a 1.5 percent gain in May.

Economists expected a 2 percent rise in durable goods orders, according to the median of forecasts in a Bloomberg News survey, after a previously reported 0.2 percent drop in May.

``The factory side is still doing pretty well,'' said Mark Chandler, a senior economist at Scotia Capital Inc. in Toronto. ``For at least the next little while, that should help cushion the blow.''

Jobless Claims

First-time claims for unemployment insurance declined last week to 298,000 from 305,000, the Labor Department reported. Economists forecast a rise in claims to 310,000. The number of people continuing to collect state jobless benefits fell to 2.475 million in the week ended July 15.

``The employment market is strong,'' said Bill Mulvihill, a senior economist at First Trust Advisors LP in Lisle, Illinois. ``That should help consumer spending even in the face of high energy prices.''

Treasury securities and the dollar were little changed after the numbers. The yield on the 10-year note was 5.03 percent at 10:18 a.m. in New York.

Orders for commercial aircraft increased 8.8 percent in June after declining a month earlier. Boeing Co., the world's second-biggest commercial plane maker, recorded orders for 135 planes last month, compared with 33 in May.

Boeing's Role

So far this year, Boeing has received orders for 493 planes. While Boeing said it does not expect to beat last year's record amount of orders, sales will be strong, the company's vice president of commerce marketing, Randy Baseler, said in an interview on July 17.

``We're very pleased with where we're at this year and we're looking forward to some more (orders) throughout the year,'' Baseler said. ``We do think this year will be a strong year too because the economy continues to grow.''

Orders for computers and electronics rose 3.4 percent last month after falling 2.1 percent. Communications equipment orders increased 8.3 percent after rising 6.6 percent the month before.

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 0.4 percent last month after rising 1.3 percent in May. Shipments of those items, used in calculating gross domestic product, fell 0.2 percent after no change in May.

Business Equipment

Shipments, or sales, of business equipment slowed in the second quarter to an annual rate of 5.7 percent, according to Bloomberg calculations. In the first three months of the year, sales increased at a 10.6 percent pace.

The increase in corporate orders for equipment last month suggests a rebound in sales of such goods after a second-quarter slowdown.

Economic growth probably slowed to a 3 percent annual rate in the second quarter from 5.6 percent the first three months of the year, which was the fastest rate in more than two years, according to a Bloomberg survey of 74 economists. Growth will hold near that rate the rest of 2006. The Commerce Department will release its first estimate of second-quarter growth tomorrow at 8:30 a.m. in Washington.

Orders for defense hardware surged 51 percent last month, following a 7.3 percent drop in May.

Inventories of durable goods rose 0.6 percent after a 0.7 percent gain the month before April. Unfilled orders, a gauge of future production, increased 1.7 percent. Backlogs of orders for business equipment increased 1.4 percent in June after a 1.1 percent rise, suggesting factories are having trouble meeting demand.

Demand at Caterpillar

Caterpillar Inc. is among companies expecting demand to stay strong this year and possibly next.

``Overall, we do not see 2006 as the peak for the industries we serve,'' Caterpillar Chief Executive Officer James Owens said on a conference call on July 21. ``The underlying fundamentals remain positive, and some industries like mining, energy and infrastructure development are particularly strong and probably will be for some time to come.''

The U.S. economy is ``in a period of transition'' as consumer spending and housing slacken, Bernanke said last week in his semi-annual testimony to the Senate Banking Committee on the state of the economy. ``Business investment seems likely to continue to grow at a solid pace, supported by growth in final sales, rising backlogs of orders for capital goods, and high rates of profitability.''

To contact the report on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: July 27, 2006 11:51 EDT