Durable Goods Orders in U.S. Probably Rose on Aircraft Rebound

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An employee works on the assembly of Boeing Co.'s 787 Dreamliner at the company's factory in Everett, Washington. Close

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Photographer: Stuart Isett/Bloomberg

An employee works on the assembly of Boeing Co.'s 787 Dreamliner at the company's factory in Everett, Washington.

Orders for U.S. durable goods probably rose in July by the most this year, reflecting a jump in aircraft demand that overshadowed slowdowns among other manufacturers, economists said before a report today.

The projected 2.5 percent increase in bookings for goods meant to last at least three years would be the biggest since December and follows a 1.3 percent June increase, according to the median forecast of 75 economists surveyed by Bloomberg. Figures on sales of capital equipment such as machinery and computers may have moderated, the survey showed.

Boeing Co. reported it received orders for 260 aircraft last month, the most since December. At the same time, possible U.S. tax increases and spending cuts coupled with a global economic slowdown are hurting companies such as Caterpillar Inc. (CAT) and Deere & Co., indicating manufacturing will no longer be a driver of the expansion.

“It’s pretty much Boeing,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, who projected a 3.5 percent gain in durable goods orders. “You’ve seen businesses really slow their rate of inventory accumulation. They’ve also been slowing their investment spending. I think it’s because there’s so much uncertainty heading into the elections and what it means for the short-term fiscal situation.”

The Commerce Department data are due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from a drop of 2.5 percent to an increase of 7 percent. Bookings excluding the volatile transportation category may have climbed 0.5 percent after a 1.4 percent drop in June, economists projected.

Growth Outlook

Orders and shipments for non-military capital equipment excluding aircraft, which are proxies for business investment that feed into calculations for gross domestic product, probably declined in July, the survey showed.

Regional reports indicate a slowdown for factories in August. Manufacturing in the Philadelphia region shrank for the fourth consecutive month, while New York-area factories unexpectedly contracted for the first time in 10 months.

The lingering domestic fiscal policy debate could be holding back orders for companies like Caterpillar as businesses await the end-of-year “fiscal cliff” deadline.

“One of the drags that we see right now, and we hear this actually from the field, is that uncertainty around the tax increases at the end of the year,” Michael DeWalt, director of investor relations at the Peoria, Illinois-based construction equipment manufacturer, said at an Aug. 8 conference. The government spending cuts at the end of the year are also “making everybody nervous and are probably delaying purchases,” he said.

Global Slowdown

The global slump is also a headwind. Deere cut its full- year profit forecast Aug. 15 as sales slow in Asia and Latin America, undermining the growth strategy at the world’s largest manufacturer of agricultural equipment.

Boeing, whose orders surged last month from the 24 it received in June, has been influenced. The Chicago-based plane maker this week lost an order for 35 Dreamliners with a list price of $8.5 billion in the biggest 787 cancellation yet as Australia’s Qantas Airways Ltd. scrapped a contract after deliveries were delays and demand cooled. Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. are among foreign carriers that have also pulled back as international travel has slowed.

The Standard & Poor’s Supercomposite Machinery Index (S15MACH), which includes companies like Deere, has climbed 6.7 percent this year, while the broader S&P 500 gauge has gained about 11 percent.

The Federal Reserve signaled this week that it’s ready to take more steps to spur the recovery. Many policy makers said additional stimulus probably will be needed soon unless the economy shows signs of a durable pickup, according to minutes of the central bank’s most recent meeting issued this week.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the record of the Federal Open Market Committee’s July 31- Aug. 1 gathering released this week in Washington.

                        Bloomberg Survey

================================================================
                          Durables Durables Cap Goods Cap Goods
                            Orders Ex-Trans      Core Core Ship
                              MOM%     MOM%      MOM%      MOM%
================================================================
Date of Release              08/24    08/24     08/24     08/24
Observation Period            July     July      July      July
----------------------------------------------------------------
Median                        2.5%     0.5%     -0.2%     -0.1%
Average                       2.6%     0.4%     -0.1%     -0.3%
High Forecast                 7.0%     1.5%      1.6%      1.0%
Low Forecast                 -2.5%    -1.0%     -1.5%     -2.0%
Number of Participants          75       51        11         6
Previous                      1.3%    -1.4%     -1.7%      1.0%
----------------------------------------------------------------
4CAST                         6.8%     0.8%      ---       ---
ABN Amro                      1.0%     ---       ---       ---
Acciones y Valores            0.8%     ---       ---       ---
Action Economics              1.5%    -0.5%      ---       ---
Ameriprise Financial          2.2%     0.2%      ---       ---
Bantleon Bank AG              3.2%     0.3%      ---       ---
Barclays                      1.2%     0.2%      ---       ---
Bayerische Landesbank         1.7%     0.1%      ---       ---
BBVA                          0.8%     0.3%      ---       ---
BMO Capital Markets           5.0%     0.0%      ---       ---
BNP Paribas                   2.3%     0.1%      ---      -1.3%
BofA Merrill Lynch            2.5%    -1.0%      ---       ---
Briefing.com                  3.5%     0.0%      ---       ---
Capital Economics             6.3%    -0.5%      ---       ---
CIBC World Markets            4.5%     1.0%      ---       ---
Citi                          4.0%    -0.5%     -1.0%      1.0%
ClearView Economics          -0.8%     ---       ---       ---
Comerica                     -0.5%     ---       ---       ---
Commerzbank AG                4.0%     1.0%      ---       ---
Credit Agricole CIB           3.5%    -0.5%      ---       ---
Credit Suisse                 0.5%    -0.5%     -1.0%      ---
Daiwa Securities America      1.5%     ---       ---       ---
DekaBank                      2.5%     1.5%      1.5%     -0.5%
Desjardins Group              1.5%     0.2%      ---       ---
Deutsche Bank Securities     -1.5%     1.0%      ---       ---
Deutsche Postbank AG          3.5%     0.5%      ---       ---
DZ Bank                       1.8%     0.4%      ---       ---
Exane                         1.8%     0.2%      ---       ---
First Trust Advisors          4.0%     0.8%      ---       ---
FTN Financial                 3.4%     0.4%      ---       ---
Goldman, Sachs & Co.          1.0%     ---       ---       ---
Helaba                        4.0%     ---       ---       ---
High Frequency Economics      3.0%     0.5%     -0.5%      ---
Hugh Johnson Advisors        -2.5%     ---       ---       ---
IDEAglobal                    2.0%     0.5%      ---       ---
IHS Global Insight            4.0%     ---       ---       ---
Informa Global Markets        1.8%     ---       ---       ---
ING Financial Markets         1.4%     0.6%      ---       ---
Insight Economics             1.5%     ---       ---       ---
J.P. Morgan Chase             1.2%    -0.4%     -1.0%     -2.0%
Janney Montgomery Scott       5.6%    -0.4%      ---       ---
Jefferies & Co.               3.5%     ---       ---       ---
Landesbank Berlin             6.0%     0.2%     -0.2%      ---
Landesbank BW                 2.0%     ---       ---       ---
Lloyds Bank                   2.0%     0.5%      ---       ---
Market Securities             3.8%     ---       ---       ---
Mizuho Securities             1.0%     ---       ---       ---
Moody’s Analytics             5.0%     1.2%      ---       ---
Morgan Stanley & Co.          0.5%     ---       ---       ---
National Bank Financial       2.5%     0.6%      ---       ---
Natixis                       1.0%     0.3%      ---       ---
Nomura Securities             4.8%     0.5%      ---       ---
Nord/LB                       4.0%     0.5%      ---       ---
OSK Group/DMG                 4.9%     ---       ---       ---
Pierpont Securities           3.0%     ---       ---       ---
PineBridge Investments        0.5%     0.7%      ---       ---
PNC Bank                     -1.0%     0.5%      ---       0.4%
Raiffeisenbank International  6.0%     0.5%      ---       ---
Raymond James                 1.8%     0.6%      0.8%      ---
RBC Capital Markets           4.0%    -0.4%     -0.1%      ---
RBS Securities                2.0%     ---       ---       ---
Regions Financial             4.1%     ---       ---       ---
Renaissance Macro Research    2.0%     0.0%      ---       ---
Scotiabank                    3.0%    -0.2%      ---       ---
SMBC Nikko Securities         1.4%     0.6%      ---       ---
Societe Generale              7.0%     0.8%      1.6%      0.4%
Southern Polytechnic State    3.5%     1.5%      ---       ---
Standard Chartered            3.5%     1.0%      ---       ---
Stone & McCarthy              3.3%     ---       ---       ---
TD Securities                 4.2%     0.9%      ---       ---
UBS                           3.5%     1.0%      0.5%      ---
University of Maryland        0.9%     ---       ---       ---
Wells Fargo & Co.             1.2%     1.0%      ---       ---
Westpac Banking Co.           2.0%     ---       ---       ---
Wrightson ICAP                3.0%     ---      -1.5%      ---
================================================================

To contact the reporter on this story: Michelle Jamrisko in Washington mjamrisko@bloomberg.net

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

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