US durable goods orders surge 22.6 per cent in July but outside transportation, orders weak

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WASHINGTON – Business orders for long-lasting manufactured goods shot up by the largest amount on record in July. But most of the strength came from demand for commercial aircraft, which tends to fluctuate sharply from month to month. Outside of transportation, orders dipped.

Despite the broader weakness in July, most analysts said factory output will likely support solid economic growth in the second half of this year as companies increase their orders for the equipment they need to meet rising demand.

Paul Dales, senior U.S. economist at Capital Economics, noted that some manufacturers are starting to run out of production capacity and that loans to businesses are up sharply.

“We suspect that investment will prove to be one of the economy’s bright spots in the second half of this year,” Dales wrote in a research note.

Orders for durable goods in July rose 22.6 per cent on a seasonally adjusted basis, the Commerce Department said Tuesday. The strength came from a 318 per cent increase in orders for civilian aircraft, which helped lift orders for transportation equipment by a record 74.2 per cent.

Excluding transportation, orders fell 0.8 per cent. And a key category that serves as a proxy for business investment plans dropped 0.5 per cent. Still, that followed a sizable 5.4 per cent rise in the previous month.

After going into reverse during the first three months of the year, mainly because of the severe winter, the U.S. economy rebounded in the April-June quarter: It grew at a solid annual rate of 4 per cent as measured by the gross domestic product, the economy’s total output of goods and services.

The jump in commercial aircraft orders reflected a good month for Boeing, which reported 324 orders for new aircraft in July, up from 109 orders in June. And this week, the company said it received an $8.8 billion order from an aircraft leasing company based in Singapore.

Automakers also had a strong month in July, with orders for motor vehicles and parts rising by 10.2 per cent after a 1.3 per cent drop in June.

But outside of transportation, orders fell 0.8 per cent, the biggest drop in this category since a 1.7 per cent decline in December.

Orders for non-defence capital goods excluding aircraft, a category viewed as a proxy for business investment, edged down 0.5 per cent after having risen 5.4 per cent in June and dropping 1.4 per cent in May.

Demand for machinery fell 1.8 per cent. Orders for computers and other electronic products dropped 1.2 per cent, and demand for primary metals such as steel dipped 0.3 per cent.

On Thursday, the government will revise its first estimate of GDP. Many economists believe that the figure will be revised down slightly but remain at a still-strong 3.9 per cent annual growth rate. Economists expect strength in employment, manufacturing and consumer spending to support healthy annual growth of around 3 per cent in the second half of this year.

Factory output rose for the sixth consecutive month in July, increasing by 1 per cent, led by a jump in production of motor vehicles, furniture, textiles and metals.

In another sign of strength in manufacturing, the Institute for Supply Management reported that its manufacturing index climbed to a reading of 57.1 in July, the highest level since April 2011 and up from a June reading of 55.3. Any reading above 50 signals that manufacturing activity is growing.

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