Orders for U.S. business equipment rose in June after falling the prior month, forming an inconsistent pattern that indicates corporate investment lacks the momentum needed to propel economic growth to a higher level.
Bookings for non-military capital goods excluding aircraft climbed 1.4 percent after a 1.2 percent decrease in May that was previously reported as a 0.7 percent gain, data from the Commerce Department showed today in Washington. Such demand, considered a proxy for future business spending, declined 0.9 percent over the past three months, dimming the third-quarter outlook. Orders for all durable goods climbed.
Companies are waiting to expand capacity until they believe sales increases will be sustained. An improving job market will probably prompt consumers to keep replacing older cars, appliances and computers, a sign manufacturers will remain busy and give growth a boost in the second half of the year.
“We’re seeing a continuation of the pattern we’ve seen, which has been relatively subdued growth in capital goods and equipment spending,” said Ryan Wang, an economist at HSBC Securities USA Inc. Wang is the second-best forecaster for capital-goods orders over the past two years, according to data compiled by Bloomberg.
“Businesses have been a bit more willing to increase their workforce this year, but capital investment decisions are based on longer-term expectations for final demand,” Wang said. “Businesses are probably going to remain cautious.”
Stocks fell, pulling the Standard & Poor’s 500 Index down from a record, as earnings at Amazon.com Inc. and Visa Inc. missed estimates. The S&P 500 dropped 0.5 percent to 1,978.34 at the close in New York.
Elsewhere today, figures from the Office for National Statistics in London showed the U.K. has completely recovered the output lost during the financial crisis and is on track to be the best-performing Group of Seven economy this year. Gross domestic product expanded 0.8 percent in the second quarter, pushing output above its previous peak in the first three months of 2008.
The June increase in U.S. non-military capital goods excluding aircraft exceeded the 0.5 percent gain projected by economists surveyed by Bloomberg.
Today’s Commerce Department report also showed demand for all durable goods -- items meant to last at least three years -- increased 0.7 percent, led by bookings for commercial and military aircraft.
The median forecast of 82 economists surveyed by Bloomberg projected total durable goods orders would rise 0.5 percent. Estimates ranged from a decline of 1 percent to an increase of 2.5 percent. The May reading was revised to show a 1 percent drop compared with a previously reported 0.9 percent decrease.
Shipments of non-military capital goods excluding aircraft, used in calculating GDP, dropped 1 percent in June, marking the third consecutive drop.
Other surveys have indicated manufacturing has improved in recent months. The Institute for Supply Management’s factory index hovered in June around May’s five-month high and the Federal Reserve reported industrial production climbed from April through June by the most in almost four years.
“The multiple data sets do not jibe with each other,” Michael Montgomery, an economist at IHS Global Insight in Lexington, Massachusetts, wrote in a research note. “The business surveys, industrial production, inventory swings, and manufacturing employment data all tell a story of above-normal growth, but the durable goods report says ‘Nay.’ We believe the more consistent story of the majority of reports.”
Factories are being helped by gains in auto demand. Cars and light trucks sold at a 16.9 million pace in June, the fastest rate since July 2006.
Residential real estate is providing less support to manufacturing than in prior months. Sales of new homes eased in June, a report showed yesterday. Restrictive lending rules, limited land supply, higher mortgage rates and more expensive properties are keeping a lid on how much the housing recovery can accelerate.
Even so, labor market gains are helping to keep homebuilders and appliance manufacturers positive about prospects for their industry.
“U.S. supply and demand has rebounded from a slow winter start,” Marc R. Bitzer, president of Whirlpool Corp.’s North America and Europe, Middle East and Africa regions, said in a July 23 conference call. “Macroeconomic indicators point to a strong second half, as we’re seeing the lowest unemployment rate since September 2008.”
Employers added 288,000 workers to payrolls in June, lifting the average gain so far this year to 231,000, compared to a 194,000-per-month average for all of 2013. Joblessness declined to 6.1 percent.
GDP will probably grow at a 3.1 percent annualized rate this quarter after a 3.3 percent expansion in the quarter that ended in June, according to the median projection in a Bloomberg survey conducted July 3 to July 9. That comes after a 2.9 percent first-quarter contraction, the worst reading since the depths of the recession, during an unusually harsh winter.