Orders for U.S. Durable Goods Unexpectedly Fall as Inventory Growth Slows

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Sales specialist Rell Spevens, rear, helps customer Carla Crump look at washers and dyers at a Lowe's store in Raleigh, North Carolina. Close

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Photographer: Jim R. Bounds/Bloomberg

Sales specialist Rell Spevens, rear, helps customer Carla Crump look at washers and dyers at a Lowe's store in Raleigh, North Carolina.

Orders for U.S. durable goods unexpectedly dropped in June, raising the risk that a slowdown in business investment will weigh on the world’s largest economy in the second half of the year.

Bookings for goods meant to last at least three years fell 2.1 percent after a 1.9 percent gain the prior month that was smaller than last reported, the Commerce Department said today in Washington. Demand for business equipment, including machinery and computers, also dropped.

Manufacturers face a slowdown in consumer spending just as they are poised to rebound from the parts shortages caused by Japan’s earthquake, indicating production may keep cooling. Companies are also cutting back on hiring, which may further temper household demand.

“The momentum in capital spending has slowed,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “Unless we get a pickup in consumer demand, the overall rebound in growth is going to be pretty moderate.”

Stocks fell as the stalemate over cutting the government budget pushed the U.S. closer to defaulting on its debt. The Standard & Poor’s 500 Index dropped 1.5 percent to 1,312.13 at 10:27 a.m. in New York. Treasury securities were little changed.

The median forecast of 76 economists surveyed by Bloomberg News projected a 0.3 percent increase in orders. Estimates ranged from a decline of 1.9 percent to a gain of 1.9 percent. The Commerce Department revised the May gain down from a previously reported 2.1 percent advance.

Transportation Equipment

Orders excluding volatile transportation equipment, like commercial aircraft, increased 0.1 percent after a 0.7 percent gain, the Commerce Department said. Demand for transportation gear dropped 8.5 percent, countering industry data.

Boeing Co. (BA), the largest U.S. maker of aircraft, said it received orders for 48 airplanes in June, up from 27 the prior month. Industry data, nonetheless, may not correlate precisely with the government statistics on a month-to-month basis because it doesn’t take into account the prices.

Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items like computers, engines and communications gear, decreased 0.4 percent after rising 1.7 percent the prior month. The drop signals companies scaled back investment plans.

Demand for machinery dropped 2.3 percent, the most since January. Computer bookings fell 0.8 percent and those for automobiles decreased 1.4 percent.

More Shipments

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, increased 1 percent after rising 1.7 percent.

The positive news from shipments was countered by a slowdown in stockpiling. Inventories climbed 0.4 percent in June, the smallest gain since March 2010.

Economists at JPMorgan Chase & Co. in New York and Macroeconomic Advisers in St. Louis were among those cutting projects for growth last quarter. The economist expanded at a 1.8 percent annual rate from April through June after growing at a 1.9 percent pace in the first three months of the year, according to the median forecast of economists surveyed before a Commerce Department report on July 29.

Recent reports have sent conflicting signals about U.S. factories, a leader in the economic recovery. While restraints from Japan’s earthquake and higher raw material costs earlier in the year may be wearing off, consumer demand has slowed as Americans’ employment prospects waned.

Other Data

The Institute for Supply Management’s factory index rose in June for the first time in four months, supporting the Federal Reserve’s forecast that the economy will strengthen in the second half of 2011 as “factors that are likely to be temporary” subside.

Factory production, on the other hand, was unchanged in June as auto and business equipment output declined, Fed figures showed July 15. The so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut, also indicated manufacturing in that region contracted in July for a second straight month.

“We’re not looking at robust recovery period here, but through thick and thin, it’s being sustained,” Bradley Holcomb, chairman of the Institute for Supply Management’s factory survey committee, said during a July 1 conference call with reporters. “Everybody’s cautious.”

Xerox Chief Executive Officer Ursula Burns said the temblor that struck Japan in March and hurt the company’s suppliers will affect the provider of printers and business services in the second and third quarters. Nonetheless, Xerox is “already seeing significant improvement” and expects to return to normal operations in the fourth quarter, she said.

‘Supply Issue’

“Let me be clear: Demand is not the problem here,” Burns said in a July 22 call with analysts. “This is a supply issue. The second quarter impact was expected and created a backlog for orders taken in the quarter, orders that we’ll be filling during the balance of the year.”

The Norwalk, Connecticut-based company reported a 41 percent increase in second-quarter profit after reducing costs and boosting revenue from services.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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