BLBG: Orders for U.S. Durable Goods Fell More Than Forecast in July
Orders for U.S. durable goods fell more than forecast in July after three months of increases, indicating manufacturing will be slow to strengthen.
Bookings (DGNOCHNG) for goods meant to last at least three years decreased 7.3 percent, the most since August 2012, after a 3.9 percent gain in June, the Commerce Department said today in Washington. The median forecast of economists surveyed by Bloomberg called for a 4 percent drop. Orders waned for aircraft and capital goods such as computers and electrical equipment.
The report shows struggling overseas markets and the effects of federal government spending cuts are lingering and holding back manufacturing, which accounts for about 12 percent of the economy. Further improvement in the labor market and sustained demand for automobiles and housing would help spur production through the second half of the year.
The figures reflect “a pretty soft global demand environment and still not incredibly strong domestic demand conditions,” Sean Incremona, a senior economist at 4Cast Inc. in New York, said before the report. “I think we’ll probably continue to see this modest growth path through the end of the year with headwinds abating next year.”
Orders excluding transportation equipment, which is volatile month to month, declined 0.6 percent after a 0.1 percent gain in June that was previously estimated as a 0.1 percent decrease.
Forecasts for all durable goods orders in the Bloomberg survey of 77 economists ranged from a drop of 8.2 percent to a 3 percent advance.
Today’s figures showed bookings for commercial aircraft decreased 52.3 percent after climbing 33.8 percent in June. Chicago-based Boeing Co. (BA) said it received 90 aircraft orders in July, down from 287 the previous month.
Business Equipment
Demand for non-defense capital goods excluding aircraft, a proxy for future business investment in computers, electronics and other equipment, dropped 3.3 percent in July after rising 1.3 percent in the prior month.
Shipments of those products, a measure used in calculating gross domestic product, declined 1.5 percent after falling 0.8 percent in June. The value of capital goods sales in July was $65 billion, compared with an average of $65.9 billion in the second quarter, indicating business investment was gaining little traction at the start of the third quarter.
The U.S. economy grew at a 1.7 percent annualized rate in the second quarter after a 1.1 percent gain the prior three months, Commerce Department figures show. The economy has grown at an average 2.2 percent quarterly pace since the recession ended June 2009.
Growth Projection
Growth is projected to pick up in the second half of the year, climbing 2.3 percent in the third quarter and 2.6 percent in the last three months of the year, according to the median in a Bloomberg survey of 59 economists from Aug. 2 to Aug. 6.
One of the bright spots in the report was a gain in demand for motor vehicles. Orders for automobiles and parts increased 0.5 percent after a 0.2 percent gain in June. Cars and light trucks sold at a 15.7 million annualized rate in July and 15.8 million the prior month, the strongest back-to-back readings since late 2007, according to figures from Ward’s Automotive Group.
In a sign production will be sustained, the backlog of orders to factories increased 0.4 percent in July after surging 2.1 percent. Unfilled orders for non-military capital goods excluding transportation equipment climbed 1.1 percent last month following a 1.8 percent advance.
Today’s report also showed total shipments of durable goods decreased 0.3 percent in July after falling 0.1 percent.
Even as the economy in Europe shows signs of stabilizing, it will take time for sales to pick up for American manufacturers such as Toro Co.
“While encouraged by the recent news of the euro zone economy’s return to growth after six straight quarters of contraction, we realize the expansion is not evenly spread across member nations, and consequently, we cannot depend on a significant lift for our international businesses from economic growth in the region,” Michael J. Hoffman, chairman and chief executive officer at Toro, said on an Aug. 22 teleconference with analysts. The Bloomington, Minnesota-based company makes lawnmowers and golf- course maintenance equipment.
The company reported third-quarter sales that beat forecasts, helped in part by stronger demand in its international and residential businesses. Toro also raised its full-year earnings outlook as margins improved.
The housing recovery is boosting orders for goods such as furniture and appliances. Sales of previously owned homes climbed in July to the fastest pace since November 2009 as more buyers entered the market to beat further rate increases, the National Association of Realtors said last week.
At the same time, higher borrowing costs show signs of cooling the residential real estate market. Purchases of new U.S. homes plunged last month by the most since May 2010, Commerce Department data showed last week.
The interest rate on a 30-year fixed home loan climbed to 4.58 percent in the week ended Aug. 22, according to data compiled by Freddie Mac. The benchmark gauge for home financing rose from a record-low 3.31 percent in November and posted its biggest-ever quarterly gain of 25 percent from April to June.
To contact the reporter on this story: Michelle Jamrisko in Washington mjamrisko@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
