Orders to U.S. Factories Rose in June Pointing to Growth Pickup

Orders placed with U.S. factories rose in June, pointing to further stabilization in manufacturing that may help lift second-half growth.

The 1.5 percent gain in bookings followed a revised 3 percent advance the prior month that was larger than initially reported, the Commerce Department said today in Washington. The median forecast of 60 economists in a Bloomberg survey called for a 2.3 percent increase. Demand for durable goods, those meant to last at least three years, rose 3.9 percent, down from figures reported last week.

Higher sales of automobiles and sustained demand in the housing industry, even as mortgage rates rise, are helping factories overcome weakness in orders from overseas. More progress in the labor market that added 162,000 jobs last month may be needed to convince consumers to spend more, supporting manufacturing and the expansion through the end of the year.

“Demand for manufactured goods has started to pick up in recent months, allaying concerns that manufacturing activity could be stalling,” Ryan Wang, an economist at HSBC Securities USA Inc. in New York, said in a research note before the report. The recent rise in orders is “pointing to stronger activity in the months ahead.”

Orders Level

The department said the level of orders in June reached the highest since records began in 1992.

The 162,000 rise in payrolls in July was the smallest in four months and followed a revised 188,000 rise in June that was less than initially estimated, according to a report from the Labor Department this morning. The unemployment rate declined to 7.4 percent from 7.6 percent.

Estimates in the Bloomberg survey ranged from factory order gains of 0.6 percent to 5 percent after a previously reported 2.1 percent advance in May.

Bookings for commercial aircraft rose 32.1 percent after climbing 67.6 percent in May. Chicago-based Boeing Co. said it received 287 aircraft orders in June, up from 232 the previous month.

Orders for non-durable goods including petroleum fell 0.6 percent. The drop in non-durables reflected decreases in tobacco products and agriculture chemicals.

Capital Goods

Bookings for capital goods excluding aircraft and military equipment, an indicator of future business investment, increased 0.9 percent in June. The reading was revised up from the government’s first estimate last week which showed a 0.7 percent advance.

Shipments of those goods, used in calculating gross domestic product, fell 0.9 percent in June, unchanged from last week’s estimate.

A report yesterday showed American factories climbed in July as production surged to a nine-year high. The Institute for Supply Management’s manufacturing index jumped to 55.4, the strongest since June 2011 and exceeding the highest projection in a Bloomberg survey of economists, from 50.9 in June. A reading of 50 is the dividing line between expansion and contraction.

Gross domestic product, the value of all goods and services produced, rose at a 1.7 percent annualized rate in the second quarter after a 1.1 percent gain in the prior three months that was smaller than previously estimated, Commerce Department figures showed earlier this week. The data showed that corporate spending on equipment climbed at a 4.1 percent annualized pace.

Housing Gains

Gains in residential real estate are helping sustain orders at factories. Work began on 836,000 houses at an annualized rate in June, the Commerce Department said last month, the least in a year while beating the average of 682,000 since the recession ended June 2009. The drop was led by a plunge in multifamily projects, which are more volatile than single-family homes.

Purchases of new U.S. homes climbed 8.3 percent to an annualized pace of 497,000 homes in June, achieving the highest level since May 2008.

At the same time, the average for a 30-year fixed-rate mortgage was 4.39 percent in the week ended Aug. 1, higher than the 3.71 average so far in 2013, according to data from Freddie Mac. The rate reached 3.31 percent in November, the lowest in records dating to 1972.

D.R. Horton Inc. of Fort Worth, Texas, the largest U.S. homebuilder by volume, is expecting a positive growth trajectory even as higher mortgage rates may weigh on orders.

“We expect that most home buyers who slow their purchase decision while rates are volatile will ultimately still buy a house, since affordability remains strong and interest rates remain at historically low levels,” Chief Financial Officer William Wheat said on a July 25 earnings call. “But clearly demand over the long term is driven more by economic indicators and clearly those trends still tend to be positive in most of our markets.”

Demand for automobiles also is supporting production. Cars and light trucks sold at a 15.6 million annualized rate in July and 15.9 million the prior month, the strongest back-to-back readings since late 2007, according to figures from Ward’s Automotive Group.

Manufacturing, which accounts for about 12 percent of the economy, may help lift growth in the second half of the year as the effects of federal spending cuts and tax increases fade.

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