Increase in Goods Orders Points to Factory Rebound: Economy
American factories received more orders for automobiles and machinery in June, pointing to a pickup in manufacturing that will help propel the world’s largest economy in the second half of 2013.
Bookings (DGNOCHNG) for goods meant to last at least three years rose 4.2 percent, three times the median forecast of economists surveyed by Bloomberg, according to data from the Commerce Department issued today in Washington. Other reports showed consumer confidence last week matched a five-year high and jobless claims climbed as carmakers retooled plants.
Rising demand for vehicles and equipment contributed to a fourth consecutive increase in orders for capital goods that signals business investment will rebound following a second-quarter slump. Gains in housing, household sentiment and employment are benefiting companies such as Ford Motor Co. (F) and Whirlpool Corp. (WHR), brightening the prospects for a more durable economic expansion.
“What you’re going to see is a stronger second half, a stronger third quarter,” said Eric Green, global head of rates, foreign exchange, and commodities research at TD Securities Inc. in New York. “It’s looking very positive.” TD Securities is the second-best forecaster of capital goods orders over the past two years, according to data compiled by Bloomberg.
Stocks rose, halting two days of losses for the Standard & Poor’s 500 Index (COMFCOMF), as investors weighed corporate earnings and the economic data. The S&P 500 gained 0.3 percent to 1,690.25 at the close in New York.
Economies abroad also showed signs of improving. Growth in the U.K. accelerated in the second quarter as all main industries showed expansion for the first time in three years, figures from the Office for National Statistics showed today in London.
Consumer confidence rose last week as an improving job market helped make Americans the least pessimistic about the economy in more than five years, other figures showed today.
The Bloomberg Consumer Comfort Index improved to minus 27.3 in the seven days ended July 21, matching its highest level since January 2008, from minus 28.4 the prior period. The measure tracking perceptions about the economy posted its biggest advance since September 2008.
“What we’re seeing here is consumer sentiment continuing to move in a tight range likely based on Americans’ perceptions of growing job security,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York.
Another report showed claims for jobless benefits rose by 7,000 to 343,000 in the period ended July 20, according to data from the Labor Department. The retooling at carmakers and school closings typical during this time of year continued to influence the figures last week, a government spokesman said as the data were released.
“The trend in claims is fairly stable,” said Sean Incremona, a senior economist at 4Cast Inc. in New York, who projected an increase in claims. “We’re sustaining the improvement we saw from late last year.”
The median forecast of 79 economists surveyed by Bloomberg projected orders for durable goods would advance 1.4 percent in June. Forecasts ranged from a drop of 4 percent to a 4 percent gain. The Commerce Department also revised the May gain to 5.2 percent from the previously reported 3.7 percent increase.
Orders for automobiles and parts rose 1.3 percent in June after dropping 0.8 percent the prior month, today’s report showed. Bookings for machinery such as construction and metal-working equipment climbed 2.4 percent after a 0.5 percent gain in May.
Cars and light trucks sold at a 15.9 million annualized rate in June, the strongest since November 2007. Dearborn, Michigan-based Ford, the second-largest U.S. automaker, this week reported second-quarter per-share profit excluding some items that beat the average estimate of 17 analysts surveyed by Bloomberg.
General Motors Co. (GM) today reported second-quarter profit that exceeded analysts’ projections. Demand for pickups in the U.S. as well as Cadillacs and Buicks in China boosted revenue 3.9 percent.
Ford said it will hire 3,000 salaried employees this year, 800 more than originally planned, as it moves to fill positions in engineering and other technical area.
“Engineers and technical professionals are in as much demand as our cars, trucks and SUVs,” Felicia Fields, group vice president for human resources, said in a statement announcing the plan. About half the positions have already been filled, according to June 23 statement.
The Commerce Department figures showed orders for non-defense capital goods excluding aircraft, a proxy for future business investment in computers, electronics and other equipment, climbed 0.7 percent in June after rising 2.2 percent the prior month. They were up 8.3 percent at an annualized rate in the second quarter following a 21.4 percent gain in the first three months of the year.
Macroeconomic Advisers in St. Louis, which updates its estimates for gross domestic product with each new piece of data, raised its third-quarter growth forecast to 2.5 percent following the report from 2.4 percent.
The news for the second quarter wasn’t as positive. Shipments (CGSHXAI%) of non-defense capital goods excluding aircraft, a measure used in calculating GDP, fell 0.9 percent after rising 1.9 percent in May, prompting Macroeconomic Advisers to lower its second-quarter projection to 0.5 percent from 0.7 percent. Those data will be released July 31.
In a sign industrial production will be sustained, the backlog of orders to factories jumped 2.1 percent in June, the most since the end of 2007, today’s report showed. Unfilled orders for non-military capital goods excluding transportation equipment climbed 1.7 percent last month after a 1.2 percent increase.
The housing and automobile industries are bolstering the recovery, Federal Reserve Chairman Ben S. Bernanke said last week in testimony before the House Financial Services Committee.
“Housing prices going up are not only beneficial in terms of stimulating more construction,” Bernanke said. The gains in property values also improve household balance sheets and encourage consumer spending, he said.
Progress in residential real estate is boosting demand for companies such as Benton Harbor, Michigan-based Whirlpool.
“We are seeing, we think, sustainable, profound demand recovery in the U.S. marketplace,” Chief Executive Officer Jeff Fettig said on a July 19 earnings call. “In North America, we’re increasing our industry demand assumption to be up 6 percent to 8 percent for the year as we continue to see very positive trends in U.S. housing as well as pickup in really all segments of the market from a demand perspective.”
The pickup in manufacturing hasn’t been universal. Caterpillar Inc. (CAT), the largest manufacturer of mining and construction equipment, cut its earnings forecast yesterday for a third straight quarter on slower commodity demand from emerging markets. With economic growth slowing in China, some of Caterpillar’s commodity-producing customers are cutting billions of dollars from their budgets.
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