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Surge in Durables Orders Affirms Factory Pickup: Economy

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A surge in demand for airplanes helped push orders for durable goods up at a record pace in July, boosting prospects for a sustained pickup in U.S. manufacturing.

Bookings (DGNOCHNG) for goods meant to last at least three years soared 22.6 percent after a revised 2.7 percent gain in June that was bigger than previously estimated, according to Commerce Department data issued today in Washington. Other reports showed consumer confidence unexpectedly climbed in August to the highest level in almost seven years and home prices rose at a slower pace in June.

While the advance in orders last month was focused in aircraft and automobiles, revisions to June data showed demand for computers, electrical equipment and machinery was also improving as confidence grows to invest in expanding operations. Gains in hiring are also lifting consumers’ spirits, which bodes well for bigger increases in consumer purchases.

“Everything is falling into place,” said Aneta Markowska, chief U.S. economist at Societe Generale SA in New York, who forecast that durable goods and consumer sentiment would climb. “We’re seeing signs that business investment is picking up. The gain in confidence is a reflection of labor market conditions, which has positive implications for consumer spending.”

Photographer: Patrick T. Fallon/Bloomberg

A boost in transactions for aircraft helped lift the overall goods figure. Boeing Co., the Chicago-based aerospace company, said it received 324 orders for planes last month, almost three times the 109 tally in June. The company’s reported deals picked up at the Farnborough Air Show in England lastmonth. Close

A boost in transactions for aircraft helped lift the overall goods figure. Boeing Co.,... Read More

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Photographer: Patrick T. Fallon/Bloomberg

A boost in transactions for aircraft helped lift the overall goods figure. Boeing Co., the Chicago-based aerospace company, said it received 324 orders for planes last month, almost three times the 109 tally in June. The company’s reported deals picked up at the Farnborough Air Show in England lastmonth.

Stocks rose on the improving economic data, sending the Standard & Poor’s 500 Index to close above 2,000 for the first time. The S&P 500 advanced 0.1 percent to 2,000.02 at the close in New York.

Survey Results

The median forecast of 78 economists surveyed by Bloomberg estimated durable goods orders would climb 8 percent. Estimates ranged from a 0.5 percent gain to a 38.1 percent surge. The June reading was revised up from a previously reported 1.7 percent increase.

The report showed plane bookings surged 318 percent, the most since January 2011. Boeing Co., the Chicago-based aerospace company, said it received 324 orders last month, almost three times the 109 tally in June. The company’s reported deals picked up at the Farnborough International Air Show in the U.K.

Demand for motor vehicles and parts climbed by 10.2 percent, the most since August 2009.

Motor vehicle assembly lines are humming as sales linger near an eight-year high. Cars and light trucks sold at a 16.4 million pace in July, down from the 16.9 million the prior month that was the fastest rate since July 2006.

Orders excluding transportation equipment decreased 0.8 percent in July after a 3 percent increase a month earlier that was almost four times larger than previously reported, today’s Commerce Department report showed.

Business Investment

Orders for non-military capital goods excluding aircraft, a proxy for future business investment, fell 0.5 percent last month after a revised 5.4 percent jump in June that was the biggest since November.

Shipments of such goods, used in calculating gross domestic product, increased 1.5 percent in July, the most in four months, after rising 0.9 percent the prior month, today’s report showed. The June reading had previously been reported as a decline.

“When you get past the volatility of the aircraft, what you’re seeing is continued firming in core business spending,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The underlying trend here is ongoing moderate pace” of capital investment, he said.

A regional factory report showed the gains were continuing this month. The Federal Reserve Bank of Richmond’s manufacturing index climbed in August to the highest level since March 2011, figures today showed.

Consumer Confidence

The report on consumer confidence indicates households may also loosen their purse strings. The Conference Board’s sentiment gauge rose to 92.4 this month, the highest since October 2007, from 90.3 in July, the New York-based private research group said.

The median forecast in a Bloomberg survey called for a decline to 89.

The group’s barometer of present conditions increased to the highest since February 2008, while its expectations gauge for the next six months declined.

“Consumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “Overall, however, they remain quite positive about the short-term outlooks for the economy and labor market.”

The share of respondents who said jobs were currently plentiful climbed to the highest since March 2008. Those who said positions were hard to get decreased to the fewest since July 2008.

Labor Market

The figures tend to better reflect developments in the labor market than other sentiment measures, which would explain why the Conference Board index is diverging, according to economists such as Neil Dutta at Renaissance Macro Research LLC in New York.

Another report showed home-price gains are decelerating. The S&P/Case-Shiller index of property values in 20 cities increased 8.1 percent in June from a year earlier, the smallest 12-month advance since January 2013, the group reported.

All 20 cities in the index showed a year-over-year gain, led by a 15.2 percent climb in Las Vegas and a 12.9 percent advance in San Francisco. Cleveland showed the smallest year-over-year increase, with prices rising 0.8 percent.

The durable goods report corroborated other surveys indicating factory activity has gained traction in recent months. The Institute for Supply Management’s index climbed in July to its strongest level since April 2011.

Business investment in equipment climbed at a 7 percent annualized rate in the second quarter, rebounding from a 1 percent annualized decline in the first three months of the year, according to the Commerce Department’s report on gross domestic product.

Housing’s Impact

Some manufacturers are also getting a boost as housing shows uneven progress in rebounding from a slowdown earlier this year. Sales of previously owned homes rose last month at their strongest pace since September, according to data from the National Association of Realtors last week.

Whirlpool Corp., a Benton Harbor, Michigan-based appliance maker, is among companies expecting demand to improve the rest of this year after a weak, winter-depressed start to 2014.

“Macroeconomic indicators point to a strong second half as we’re seeing the lowest unemployment rate since September 2008,” Marc Bitzer, president of Whirlpool’s North America unit, said on a July 23 earnings call. “Strong replacement demand will continue as consumers replace older appliances.”

To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle

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