Aug. 27 (Bloomberg) -- Orders for U.S. durable goods unexpectedly increased in July, indicating that growing demand from abroad is still helping companies weather a slump in domestic spending.

The 1.3 percent gain in bookings of goods meant to last several years matched the previous month's rise, the Commerce Department said today in Washington. The gains may have been aided by foreign demand for automobiles, aircraft and telecommunications gear as exports climbed to a record.

The boost from exports, which kept the U.S. expanding last quarter, may wane because the European and Japanese economies are now contracting, while the dollar is rallying. Federal Reserve officials anticipate trade gains will fade, minutes of their Aug. 5 meeting showed yesterday.

Manufacturing ``is essentially afloat on a trade lifeboat,'' said Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York. ``With growth now showing convincing signs of slowing with some of our major trading partners, we think that capital- equipment spending is going to slow in the latter part of the year.''

Treasuries fell immediately after the report and recovered later in the day, while stocks rose. Benchmark 10-year notes yielded 3.76 percent at 4:07 p.m. in New York, from 3.78 percent late yesterday. The Standard & Poor's 500 Stock Index increased 0.8 percent to close at 1,281.66.

Economists' Forecasts

Economists projected orders would be unchanged after a previously reported 0.8 percent increase in June, according to the median of 76 forecasts in a Bloomberg News survey.

Excluding transportation equipment, orders rose 0.7 percent after a 2.4 percent increase. Those bookings were projected to fall 0.7 percent, after an originally reported 2 percent gain in June.

Today's report indicates stronger growth in the third quarter than economists previously anticipated. Morgan Stanley analysts now project a 0.8 percent annualized gain in gross domestic product in the period, up from 0.4 percent previously.

Tomorrow, the Commerce Department is also forecast to raise its estimate of second-quarter GDP growth to 2.7 percent, from 1.9 percent before, due to stronger exports.

3M Co., whose product range makes it an economic bellwether, and Cummins Inc., the maker of more than a third of North America's heavy-duty truck engines, are among companies benefiting from demand abroad.

Foreign Demand

About two-thirds of 3M's revenue comes from overseas, where sales increased three times faster than in the U.S. last quarter. Columbus, Indiana-based Cummins said on July 30 that sales of power-generation equipment climbed 22 percent in the second quarter on demand from the Middle East, Latin America and China. International sales accounted for 61 percent of the quarter's revenue.

``The impact from global weakening so far on U.S. manufacturers remains modest,'' Aaron Smith, an economist at Moody's Economy.com, said in an interview with Bloomberg Television. Because of domestic weakness, the economy may still slow or contract ``while simultaneously still having very modest weakness in manufacturing and capital spending,'' he said.

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, increased 2.6 percent, the most since April. Shipments of those items, used in calculating GDP, rose 0.6 percent following a 0.4 percent gain that was smaller than previously estimated.

Stimulus Package

Capital spending incentives included in the $168 billion economic stimulus package enacted in February have probably also lifted orders, Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York, wrote in a note today. That effect will fade, he predicted.

``Companies simply have no basis to expand their productive capacity'' given ``the weakness of the U.S. economy,'' he said.

The waning impact of federal tax rebates already contributed to the first decline in retail sales in five months, Commerce Department figures showed Aug. 13.

Factories are faring better than in past downturns. The Institute for Supply Management's manufacturing index for July fell to 50, the dividing line between growth and contraction, from 50.2 a month earlier. During the 2001 recession it averaged 43.5.

Regional figures this month were mixed. The New York Fed's general economic index rose in August to 2.8, the highest level since January, from minus 4.9 a month earlier. The Philadelphia Fed said last week that manufacturing in the region shrank in August for a ninth straight month.

Broad-Based Gain

Gains in orders for metals, machinery, communications gear, automobiles and aircraft all contributed to the increase in demand last month.

Orders for transportation equipment rose 3.1 percent, led by a 28 percent jump in airplane bookings. Demand for automobiles climbed 1.2 percent.

The gain in autos may have reflected a continued rebound following the end of a strike at American Axle & Manufacturing Holdings Inc., the largest axle supplier for General Motors Corp. GM said June 16 it had returned to full production.

Such gains are unlikely to continue as sales slump. Auto- industry figures this month showed purchases of cars and light trucks in the U.S. fell in July to a 12.5 million annual rate, the lowest level since March 1993, as consumers faced record gas prices.

Some manufacturers are trimming staff to offset high energy costs. Alcoa Inc., the world's third largest aluminum producer, said last week that it will lay off 300 employees in Texas starting Aug. 31. The cuts come as a result of ``uneconomical power prices,'' the New York-based company said in a statement.

Commodity costs have retreated since mid-July, easing cost pressures. Crude oil futures dropped below $112 a barrel on Aug. 15 after peaking at $147 on July 11.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: August 27, 2008 16:08 EDT