Orders For U.S. Durable Goods Rise In June

Thu, 07/25/2013 - 11:01am
Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) -- Orders for long-lasting U.S. factory goods rose in June, bolstered by a surge in aircraft demand and more business spending. The increase suggests companies are more confident in the economy and could boost economic growth in the second half of the year.

The Commerce Department said Thursday that orders for durable goods increased 4.2 percent last month. That followed a 5.2 percent gain in May, which was revised higher.

Most of the gain occurred because aircraft orders, which are volatile month to month, jumped 31.4 percent. Boeing said it received orders for 287 planes in June, up from 232 in May. Excluding autos and airplanes, orders were unchanged.

Orders that signal planned business investment, which exclude volatile transportation and defense orders, increased in June for the fourth straight month. The 0.7 percent gain last month was buoyed by more machinery demand. And orders in May were much stronger than previously reported.

Even with the gain, business investment is not likely to help economic growth in the April-June quarter, economists said. That's because the government measures shipments, rather than orders, when calculating business investments' contribution to growth. Shipments fell in June. But the increase in orders this spring suggests shipments will rise in the July-September quarter and add to growth.

Jonathan Basile, an economist at Credit Suisse, said rising orders are a "recipe for a speed up in manufacturing and business investment" in the third quarter.

Durable goods are items meant to last at least three years. They include everything from computers to industrial machinery to refrigerators.

U.S. manufacturing has struggled this year, in part because a weaker global economy has slowed demand for American exports. And businesses reduced their spending on machinery and equipment in the first quarter, holding back economic growth.

The economy grew at a tepid 1.8 percent annual rate in the January-March quarter and most economists expect growth slowed to a rate of 1 percent or less in the April-June period. Figures for the second quarter will be released next week.

Many economists are hopeful that growth is starting to pick up. Some predict growth at a 2.5 percent annual rate in the second half of the year, aided by steady hiring and more consumer spending

There are also signs that overseas demand is recovering. A survey of purchasing managers in the 17 countries that use the euro currency found that business activity expanded in July for the first time in 18 months. That adds to other evidence that the eurozone may be climbing out of recession.

U.S. manufacturing output rose in June for the second straight month as factories cranked out more business equipment, autos and electronics, the Federal Reserve said last week.

And a survey by the Institute for Supply Management, a trade group, found that factory activity expanded in June after shrinking the previous month. New orders and export orders rose, a positive sign for future growth.

Dan Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), has some opinions on the latest numbers:

“Durable goods orders increased a large 4.2 percent in June, according to today’s Census Bureau report, and the estimate for orders in May was revised upward. The very strong pace of capital goods orders over the last three months is very encouraging and shows that the business sector has not given up on the prospects for stronger economic growth.

“Machinery orders were up a strong 2.4 percent in June, but the performance that led to the overly large gain was that of the aerospace industry. Both defense and civilian aerospace equipment orders surged over the last three months, including increasing 29 percent in June and 52 percent in May. For an indication of the impact on capital goods activity this year, it is best to remove the impact of long backlog and build-out defense and aerospace orders. Nondefense capital goods orders excluding aircraft increased a more moderate 0.7 percent in June and are up 2.8 percent in the first half of 2013 versus the same period last year.

“The durable goods report is further evidence that businesses are taking advantage of the exceptionally low interest rate environment and are willing to make long-term commitments that go beyond replacing worn equipment to expand capacity. Business equipment investment is expected to grow faster than the overall economy in the foreseeable future, enabling a gradual rebalancing away from this country’s excessive reliance on credit-driven consumption spending for growth.”


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