Orders for U.S. Capital Goods Rose in July by Most in a Year

U.S. Durable, Capital Goods Orders Climb in July
  • Gain in total orders beat all estimates in Bloomberg survey
  • Demand climbed for autos, communications gear and electronics

Orders for capital goods increased in July by the most in more than a year, showing corporate spending was finding its footing prior to the turmoil in financial markets.

Bookings for non-military equipment excluding planes climbed 2.2 percent, the most since June 2014, after increasing 1.4 percent in June, data from the Commerce Department showed Wednesday in Washington. Orders for all durable goods-- items meant to last at least three years -- rose 2 percent, exceeding all forecasts of economists surveyed by Bloomberg.

An expanding economy, buoyed by steady hiring, prompted business managers to feel more comfortable about updating equipment as the negative effects of dollar appreciation abated. Consumer purchases, especially on vehicles, were supporting domestic demand even as overseas sales remained weak heading into the market turbulence this month.

This “sets up very positive momentum for the third quarter for business investment,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York. “If you want to meet demand and drive revenue growth, you have to start adding to capacity.”

The median forecast of 76 economists surveyed by Bloomberg projected total orders would fall 0.4 percent. Estimates ranged from a decline of 4 percent to a 1.6 percent advance.

The Commerce Department also revised up the June increase in non-defense capital goods orders excluding aircraft from a previously reported 0.7 percent gain.

Equipment Shipments

Shipments of such goods, which are used in calculating gross domestic product, climbed 0.6 percent last month. They rose 0.9 percent in June, also revised up from a 0.3 percent increase.

The July business-equipment data show a rebound from the second quarter. In the three months through June, business investment in new plants, equipment and research declined at a 0.6 percent annualized rate, the worst performance since the third quarter of 2012. The Commerce Department is set to release its second estimate of second-quarter GDP growth Thursday.

Overseas Markets

Caterpillar Inc., the world’s largest manufacturer of construction and mining machinery, is seeing orders limited by weaker overseas customers even as the domestic economy remains resilient.

“Economic conditions in the U.S. are modestly positive, but the global economy remains relatively stagnant,” Richard Moore, director of investor relations for the Peoria, Illinois-based company, said at an Aug. 12 conference hosted by Jefferies Group LLC. “Continued economic weakness in China and Brazil, as well as uncertainty in euro zone haven’t helped confidence.”

Chinese monetary authorities cut interest rates this week for the fifth time since November amid the biggest stock-market rout since 1996 and a deepening growth slowdown. The country’s yuan devaluation on Aug. 11 shocked global markets, adding pressure for direct stimulus.

A slump in commodity prices, including a plunge in oil prices, also is impeding some business activity. Crude oil this week is hovering near its lowest levels since 2009.
Vehicle sales remain a bright spot for factory demand. Cars and light trucks sold at a 17.5 million annualized rate in July, the second-best reading since the start of 2006, according to Ward’s Automotive Group.

Steady job gains are helping buoy the consumer spending that makes up almost 70 percent of the economy. Employers added 215,000 jobs in July and the unemployment rate held at 5.3 percent, the lowest since April 2008. The Labor Department is scheduled to report August data Sept. 4.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE