Orders for US durable goods up 0.7 per cent in June led by solid gain in business investment

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WASHINGTON – Orders for long-lasting manufactured goods rebounded in June after a May decline, helped by a recovery in demand in a key category that signals business investment plans.

Orders for durable goods increased 0.7 per cent in June on a seasonally adjusted basis following a 1 per cent decline in May, the Commerce Department reported Friday.

A category viewed as a proxy for business investment plans rose a solid 1.4 per cent, recovering after a revised 1.2 per cent drop in May. It was the best showing since orders in this core capital goods category rose 4.7 per cent in March.

The strength last month came from solid gains in demand for commercial aircraft and machinery. Analysts expect economic activity will strengthen in the second half of the year, helped by stronger factory production.

The 0.7 per cent overall increase was in line with economists’ expectations and pushed total orders to $239.9 billion. So far this year, orders are up 3.5 per cent over the same period last year.

Analysts were encouraged by the solid rebound in June, saying it should set the stage for further growth in coming months.

“June’s strong orders data and other survey evidence suggest that business investment will continue to grow at a decent rate in the second half of the year,” said Paul Dales, senior U.S. economist at Capital Economics. He said he expects growth would rebound to 3.2 per cent in the April-June quarter.

Demand for transportation products rose 0.6 per cent, reflecting a big 8.2 per cent gain in orders for commercial aircraft which offset a 2.1 per cent drop in demand for motor vehicles. The drop in auto demand was expected to be temporary given strong sales of new cars this year.

Orders for machinery rose 2.4 per cent while demand for primary metals such as steel increased 0.9 per cent.

Orders for computers and related products dropped 13.9 per cent but that followed a big 11.5 per cent increase in the previous month.

The overall economy went into reverse in the January-March quarter, with output shrinking at an annual rate of 2.9 per cent. That reflected in part a severe winter that disrupted U.S. economic activity, from factory production to shopping.

Many economists believe growth rebounded to a rate around 3 per cent in the April-June quarter and they are looking for momentum to build even more in the second half of this year.

The optimism is based on a belief that the five-year-old economic recovery is finally gaining traction, with businesses confident enough to step up hiring. That uptick in hiring is expected to power stronger consumer spending and more factory production.

The government reported that factory output increased for a fifth straight month in June as manufacturers cranked out more aircraft, chemicals and furniture. For the April-June quarter, manufacturing output accelerated to the fastest pace in more than two years and economists are looking for further gains in the months ahead, reflecting strong demand for autos and increased spending by businesses on new equipment.

A surprisingly resilient jobs report for June showed that factories added 16,000 positions, the most in four months, and the average work week for manufacturing employees remained at a post-recession high.

The Institute for Supply Management reported that its closely watched manufacturing index expanded in June for a 13th straight month with broad-based growth across nearly all of the 18 sectors that the index covers.

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