Durable-goods orders rise 2% in July

A Ford Motor Corp. employee assembles the instrument panel for a 2016 Ford Explorer at the Chicago Assembly Plant in June. Orders for durable goods rose 2 percent in July after a 4.1 percent gain in June, the Commerce Department said Wednesday.
A Ford Motor Corp. employee assembles the instrument panel for a 2016 Ford Explorer at the Chicago Assembly Plant in June. Orders for durable goods rose 2 percent in July after a 4.1 percent gain in June, the Commerce Department said Wednesday.

WASHINGTON -- Orders to U.S. factories for long-lasting manufactured goods rose for a second month in July, and demand in a key category that tracks business investment plans jumped by the largest amount in 13 months.

The Commerce Department said Wednesday that orders for durable goods -- items expected to last at least three years such as refrigerators and automobiles -- increased 2 percent in July after a 4.1 percent gain in June.

The result adds to a string of recent economic data that indicate the U.S. economy is on solid ground even in the face of various global headwinds. Deepening concerns about China's economy have sent shock waves through the world's financial markets in recent days.

"As global equities continue to be roiled by uncertainty in China, we can be grateful that at least the heavyweight in the developed world is growing," said Jennifer Lee, senior economist at BMO Capital Markets, of the United States. "We already had a string of very positive data. And now, the weak link also known as business investment appears to be turning the corner."

Orders in a category that serves as a proxy for business investment expanded 2.2 percent in July after a 1.4 percent rise in June. These orders had fallen in four of the previous five months, reflecting the soft patch that manufacturing has faced this year.

This "sets up very positive momentum for the third quarter for business investment," said Aneta Markowska, chief U.S. economist at Societe Generale in New York. "If you want to meet demand and drive revenue growth, you have to start adding to capacity."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, called the gain in business investment "really good news." He described the result as a solid indication that the big cutbacks in investment spending by oil companies were starting to taper off.

The July increase in orders for durable goods was bigger than economists had been forecasting. They rose even though demand for commercial aircraft fell 6 percent during the month after a 69.7 percent surge in June.

Orders for machinery rose by 1.5 percent, and demand for communications equipment increased 1.8 percent. Orders for computers and primary metals such as steel both fell.

Caterpillar Inc., the world's largest manufacturer of construction and mining machinery, is seeing orders limited by weaker overseas customers even as the domestic economy remains resilient.

"Economic conditions in the U.S. are modestly positive, but the global economy remains relatively stagnant," Richard Moore, director of investor relations for the Peoria, Ill.-based company, said at an Aug. 12 conference hosted by Jefferies Group. "Continued economic weakness in China and Brazil, as well as uncertainty in euro zone haven't helped confidence."

While the July durable goods report is encouraging, U.S. manufacturers must still contend with a host of risks that could set them back in the months ahead, including turbulence in China, a strong dollar and falling oil prices.

The higher value of the dollar against foreign currencies makes U.S. goods more expensive and less competitive in major export markets. The lower oil prices have led energy companies to scale back their investment plans.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 0.6 percent in the January-March quarter before reviving to a growth rate of 2.3 percent in the April-June period.

Many economists believe the second quarter figure will be revised higher to above 3 percent today when the government issues its second look at GDP in the spring.

Information for this article was contributed by Martin Crutsinger of The Associated Press and by Michelle Jamrisko of Bloomberg News.

Business on 08/27/2015

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