Orders for U.S. durable goods increased less than forecast in July, a sign that one of the few remaining bright spots in the economy is cooling.
Bookings increased 0.3 percent, compared with the 3 percent median estimate of 75 economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Excluding transportation equipment, demand unexpectedly fell.
Manufacturing is slowing after leading the U.S. out of the worst recession since the 1930s as consumers cut back on spending. The pullback in factory activity will probably contribute to deceleration in growth in the second half of the year.
“Even manufacturing, the one sector consistently making jobs, is showing signs of fatigue,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “Businesses appear to be buying new equipment simply to replace old gear or boost efficiency rather than expand already- bloated capacity.”
Stock-index futures extended losses after the report and Treasury securities climbed. The contract on the Standard & Poor’s 500 Index fell 0.6 percent to 1,043.2 at 8:36 a.m. in New York. The yield on the benchmark 10-year note dropped to 2.44 percent from 2.49 percent late yesterday.
Economists’ estimates in the Bloomberg survey ranged from gains of 1.2 percent to 6.8 percent.
Unexpected Drop
Bookings excluding transportation equipment dropped 3.8 percent, the most since January 2009. The survey median projected a 0.5 percent gain.
Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, dropped 8 percent after climbing 3.6 percent in June, more than previously estimated. Over the past three months, these orders climbed at a 20 percent annual pace, down from a 31 percent gain in the three months to June, signaling companies will rein in investment.
Shipments of those items, used in calculating gross domestic product, decreased 1.5 percent after rising 1 percent in June, also more than estimated last month.
The slowdown in investment may be less of a concern to economists at Morgan Stanley and JPMorgan Chase & Co. in New York, who have noticed that demand for capital goods tends to slacken at the beginning of a quarter and pick up toward the end. The pattern is “due to technical factors associated with the seasonal adjustment of the data,” rather than business spending trends, said JPMorgan’s Michael Feroli and Daniel Silver in an Aug. 20 note to clients.
Boosting Economy
Gains in business investment supported growth last quarter. Corporate spending on equipment and software jumped at a 22 percent annual rate, the biggest increase since 1997, the Commerce Department said on July 30.
A Commerce Department report in two days may show the U.S. economy grew at a 1.4 percent annual pace from April through June compared with the 2.4 percent rate initially estimated by the government, according to the median estimate of analysts surveyed.
President Barack Obama’s stimulus package probably added between 1.7 and 4.5 percentage points to gross domestic product for the three months through June, the nonpartisan Congressional Budget Office said yesterday in a report.
With little more than two months remaining before the midterm elections in which Republicans hope to claim a majority of the U.S. House, some lawmakers are stepping up attacks on Democrats. House Republican leader John Boehner yesterday called on Obama to fire Treasury Secretary Timothy Geithner and the other remaining members of the president’s economic team, saying the stimulus policies are failing to create jobs.
Broad Decreases
Demand in July decreased for machinery, computers and fabricated metals, today’s report showed.
Manufacturers in the U.S. are faring better than companies in industries such as retail and homebuilding. Deere & Co., the world’s largest farm-equipment maker, reported a 47 percent jump in fiscal third-quarter earnings amid strength in the U.S. farming industry, the Moline, Illinois-based company said in an Aug. 18 statement.
Chief Executive Officer Sam Allen said full-year sales will rise 5 percent to 10 percent in the U.S. and Canada on “solid” commodity prices, while Western Europe sales will fall as much as 20 percent. Deere said fourth-quarter earnings will be $375 million, compared with net income of $617 million in the third quarter ended July 31.
Other reports are signaling a slowdown in factory activity. Figures this month from the Tempe, Arizona-based Institute for Supply Management showed manufacturing expanded in July at the slowest pace of the year as new orders and production decelerated.
Manufacturing in the Philadelphia region unexpectedly contracted this month for the first time in a year, according to the Federal Reserve Bank of Philadelphia.
By Timothy R. Homan – bloomberg.com
Add A Comment