Gain in U.S. Equipment Orders Points to Investment Rebound

American factories received more orders for capital goods such as machinery and fabricated metals in June, a sign business investment is poised to recover from an early-year malaise.

Bookings for non-military equipment excluding planes climbed 0.9 percent, just the second gain this year, after decreasing 0.4 percent in May, data from the Commerce Department showed Monday in Washington. Orders for all durable goods -- items meant to last at least three years -- increased 3.4 percent, led by a rebound in commercial aircraft demand.

The worst of the weakness for manufacturers may be over after the energy industry promptly adjusted to lower oil prices and other U.S. companies look to expand. Resilient consumer spending, particularly on automobiles, is helping make up for weaker overseas demand as a stronger dollar makes American-built goods more expensive.

“We’re seeing domestic activity continue to push through, despite the headwinds of sluggish global growth and the strong U.S. dollar,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics USA Inc. in New York, who correctly projected the gain in total orders. “That should allow the economy to move forward at a decent pace.”

Total durable goods orders were boosted by a 66.1 percent jump in commercial aircraft bookings. Boeing Co., the Chicago-based aerospace company, said it received 161 orders in June, a surge from 11 in the prior month.

The median forecast of 71 economists surveyed by Bloomberg projected total durable goods orders would rise 3.2 percent.

While the pickup in orders points to more sales in the third quarter, the report also showed a drop in capital-goods shipments that indicates business investment and exports remained weak from April through June.

GDP Effect

Shipments of non-defense capital goods excluding aircraft, a figure used in calculating gross domestic product, fell 0.1 percent last month. The prior reading was revised to show a 0.3 percent drop that was larger than previously estimated.

In the second quarter, business-equipment shipments decreased at a 0.8 percent annualized rate after a 4.4 percent slump in first three months of the year.

Spotty overseas growth is one reason U.S. exports declined in May by the most in three months, partly a reflection of the dollar’s advance.

Sluggish international markets are weighing on earnings at U.S. industrial giants. 3M Co. reduced the top end of its 2015 profit and revenue forecasts. Caterpillar Inc., the largest maker of construction and mining machinery, last week cut its full-year sales forecast and said important end-user industries remain weak.

Global Outlook

“While economic conditions in the United States are modestly positive, the global economy remains relatively stagnant,” Chief Executive Officer Doug Oberhelman said in a statement. “Many of the key industries we serve remain weak, and we haven’t seen sustained signs of improvement.”

The commodities market poses a challenge. Oil prices have been swept up in a broad selloff of raw materials, which have fallen to a 13-year low over concerns that economic growth will stagnate in China, the biggest consumer of energy, metals and grains.

Even with recent setbacks, the past few months have shown signs of a letup from the global plunge in crude prices that had triggered cutbacks in investment since mid-2014.

The drop in the fabrication of oil-drilling equipment is abating, and factories are producing more communications gear and other business equipment, recent Federal Reserve data showed. Total industrial output rose 0.3 percent in June, propelled by advances in mining and utilities.

Auto Sales

Demand in the U.S. for cars and trucks, while slower in the latest monthly results, remains an encouraging spot for the durable goods industry. Sales of cars and light trucks sold at a 17.1 million annualized rate in June after 17.7 million in May, according to Ward’s Automotive Group. It capped the strongest quarter since 2005.

Consumer purchases, which account for about 70 percent of the economy, are getting a boost from progress in the job market. Employers added 223,000 workers to payrolls in June, and the unemployment rate fell to the lowest level in more than seven years.