Orders for durable goods in the U.S.increased less than forecast in July and sales of new homesunexpectedly dropped, increasing the risk of a renewed recessionin the world’s largest economy.

Bookings for goods made to last at least three years rose0.3 percent, figures from the Commerce Department showed todayin Washington. Excluding transportation equipment, demand fellby the most in more than a year. Purchases of new dwellings fell12 percent to an annual pace of 276,000, the weakest since databegan in 1963, figures from the same agency showed.

The reports indicate capital spending, one of the few brightspots in a weakening economic recovery, is slowing as the secondhalf begins, while a lack of jobs is crippling housing. Mountingsigns of a slowdown are increasing pressure on the FederalReserve to find more ways to spur growth after saying this monthit would prevent its securities holdings from shrinking.

“The risks of a double-dip recession are steep enough toprovide cause for worry,” said John Lonski, chief economist atMoody’s Capital Markets Group in New York, who said the odds ofanother economic slump are now about one-in-three, twice as highas earlier this year. “It calls for more remedial action by theFederal Reserve.”

Stocks rallied, erasing earlier losses, and Treasuriesdropped on speculation the retreat in riskier assets wasoverdone given the economic outlook. The Standard & Poor’s 500Index rose 0.3 percent to 1,055.33 at the 4 p.m. close in NewYork. The yield on the benchmark 10-year note increased to 2.54percent from 2.49 percent late yesterday.

Builder Shares

Homebuilder shares gained on speculation the worst of thedecline is over, said Jack Micenko, an analyst at SusquehannaInternational Group LLP. The S&P Supercomposite HomebuildingIndex rose 3.7 percent. Toll Brothers Inc. reported today itsfirst quarterly profit since 2007 after a tax benefit and a dropin writedowns.

The median estimate of 75 economists surveyed by BloombergNews projected orders for durable goods would rise 3 percent.Estimates ranged from gains of 1.2 percent to 6.8 percent.

Bookings excluding transportation equipment dropped 3.8percent, the most since January 2009. The survey medianprojected a 0.5 percent gain.

Cisco Systems Inc., the world’s largest maker of networkingequipment, this month forecast first-quarter sales that missedanalysts’ estimates. Chief Executive Officer John Chambers saidthe San Jose, California-based company was seeing “unusualuncertainty” and getting “mixed signals” about the health ofthe economy.

Economy, Election

With little more than two months remaining before themidterm elections in which Republicans hope to claim a majorityof the U.S. House, some lawmakers are stepping up attacks onDemocrats. House Republican leader John Boehner yesterday calledon President Barack Obama to fire Treasury Secretary Timothy Geithner and the other remaining members of the president’seconomic team, saying the stimulus policies are failing tocreate jobs.

Today’s report on goods orders showed demand for non-defense capital goods excluding aircraft, a proxy for futurebusiness investment, dropped 8 percent after climbing 3.6percent in June, more than previously estimated. Over the pastthree months, these orders climbed at a 20 percent annual pace,down from a 31 percent gain in the three months to June,signaling companies will rein in investment.

Shipments of those items, used in calculating grossdomestic product, decreased 1.5 percent after rising 1 percentin June, also more than estimated last month.

‘Atrocious’ Implications

While these categories tend to slacken early in a quarter,“the capital spending implications still look atrocious,”Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. inNew York, said in a note to clients. “The downshift in the paceof capital spending is particularly worrying as this was thestrongest, most reliable sector of the economy over the pastyear.”

Corporate spending on equipment and software jumped at a 22percent annual rate in the second quarter, the biggest increasesince 1997, the Commerce Department said on July 30.

Housing may already be relapsing after a government taxbreak expired earlier this year. Today’s report showed themedian price of a new home fell to $204,000 in July, down 4.8percent from the same time last year and the lowest since late2003. Purchases fell in all four regions of the country, led bya 25 percent drop in the West.

Home Sales

Sales of existing homes plunged a record 27 percent lastmonth, according to a report yesterday from the NationalAssociation of Realtors. Home resales are tabulated when acontract is closed, while new home sales are counted at the timean agreement is signed, making them a leading indicator ofdemand.

“The housing market’s recovery has taken a big stepback,” said Ryan Sweet, a senior economist at Moody’sEconomy.com in West Chester, Pennsylvania. “Potential buyersare content to sit on the sidelines, which is understandableconsidering we have a near double-digit unemployment rate.”

Economists surveyed by Bloomberg this month forecastunemployment will end the year at 9.5 percent, unchanged fromthe rate in June and July.