Orders for U.S. durable goods climbed more than forecast in July as a surge in demand for aircraft and autos eclipsed a decrease in business equipment, including computers and machinery.
Bookings for goods meant to last at least three years rose 4 percent, the most in four months, after falling a revised 1.3 percent in June, a Commerce Department report showed today in Washington. The median projection of 81 economists surveyed by Bloomberg News called for a 2 percent gain. Orders excluding the volatile transportation category, unexpectedly advanced 0.7 percent.
Automakers last month rebounded from the slump caused by the Japanese earthquake, while some manufacturers like Deere & Co. (DE) continued benefit from growing sales in emerging markets. Nonetheless, regional factory surveys have shown demand plunged in August as concern over the European debt crisis mounted and stocks retreated, indicating the outlook may have since dimmed.
“It’s going to take time before businesses become comfortable about investing and hiring,” said Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The improvement in July appears to be narrowly based.”
Other reports today showed mixed readings for residential real estate. Home prices in the U.S. increased 0.9 percent in June from the prior month, the biggest gain since September 2005, a report from the Federal Housing Finance Agency showed. Nonetheless, property values were down 5.9 percent in the second quarter from the same time last year, the largest year-over-year drop since 2009.
The number of mortgage applications fell last week as a measure of purchases slumped to the lowest level since December 1996, a report from the Mortgage Bankers Association also showed.
Stocks rose, extending the biggest Standard & Poor’s 500 Index rally in a week, after the reports on durable goods and home prices beat forecasts and bank shares rallied. The S&P 500 advanced 1.3 percent to 1,177.6 at the 4 p.m. in New York. Treasury securities fell, sending the yield on the benchmark 10- year note up to 2.30 percent from 2.15 percent late yesterday.
Estimates for overall orders ranged from a 1 percent drop to a 7.5 percent surge. Forecasts for bookings excluding the volatile transportation category ranged from a decline of 1.5 percent to an increase of 1 percent.
Today’s report reflected a rebound in production at vehicle makers following supply disruptions caused by the earthquake in Japan in March. Orders for motor vehicles and parts jumped 11.5 percent, the most since January 2003.
Orders for commercial airplanes surged 43.4 percent in July after a 24 percent slump the prior month. Chicago-based Boeing Co. (BA), the world’s largest aerospace company, said it received 115 orders in July, up from 48 in June.
Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, dropped 1.5 percent, the most in six months, after a revised 0.6 percent gain in June.
Last month’s decrease extends a pattern of declines early in a quarter that are later reversed. Demand for non-military capital goods like computers, engines and communications gear, have dropped in the first month of a quarter in all but three instances since the end of 2005.
Shipments of those items, used in calculating gross domestic product, increased 0.2 percent after rising a revised 1.9 percent the prior month that was more than previously estimated.
Recent data showed manufacturing slowed in August. New York-region factories shrank for a third straight month and manufacturing in the Philadelphia area contracted by the most since March 2009, when the economy was in recession.
The Federal Reserve Bank of Richmond yesterday said its business activity index dropped to minus 10 in August, the weakest since June 2009, from minus 1 as orders contracted.
Any additional weakening in manufacturing would be more of a concern as much of the growth in the second quarter came from corporate investment and trade as consumer spending stagnated.
Round Rock, Texas-based Dell Inc. (DELL), the second-largest personal-computer maker, reduced sales projections for this year, citing uncertain demand and slower spending on PCs and consumer technology.
“It’s clear that the demand environment is weaker and a bit more uncertain,” Chief Financial Officer Brian Gladden said on a conference call Aug. 16. The U.S. consumer business “has gotten weaker for sure,” and federal contracts are taking longer to close, while markets like China and India are growing, he said.
Overseas sales remain a backstop for some manufacturers. Deere, the world’s largest farm-equipment maker, reported fiscal third-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast. Deere, based in Moline, Illinois, is introducing new products and expanding in countries like China, Russia and India.
The Federal Reserve’s policy-setting committee on Aug. 9 pledged to keep its benchmark interest rate near zero until at least mid-2013. Growth is “considerably slower” than anticipated, the FOMC said in a statement. Officials “discussed the range of policy tools” available and are “prepared to employ those tools as appropriate.”
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