Friday, August 24, 2007

US Durable Goods Orders Gain More Than Forecast

Orders for U.S.-made durable goods gained more than forecast in July, suggesting business spending remained a bright spot before this month's rise in the price of credit to companies and consumers.

Gains in manufacturing, spurred by dwindling inventories and increased exports, drove demand to the highest level since September. The increase signals the economy was still expanding at the onset of the August financial-market rout that spurred the Federal Reserve to cut its discount rate and warn that ``risks to growth have increased appreciably.''

Orders for products meant to last several years climbed 5.9 percent after a revised 1.9 percent gain the prior month, the Commerce Department said today in Washington. Excluding transportation equipment such as airplanes, they rose 3.7 percent, the most in almost two years.

``Even though there could be some reduction in that momentum in August, we're starting from a stronger point rather than a weak point,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. ``I don't think it affects the path we are on in terms of we're moving into a period where growth is still going to be relatively slow.''

Global Insight's forecast of a 6 percent increase in orders was the closest to the reported figure among 73 economists surveyed by Bloomberg News.

Treasury notes were little changed as traders awaited a separate Commerce Department report forecast to show sales of new homes fell to the lowest level in seven years in July.

Exceeding Estimates

Economists had anticipated durable-goods orders would rise 1.0 percent, the median forecast in the survey, after a previously reported 1.3 percent rise in June. Forecasts for the increase ranged from 0.3 percent to 6 percent.

Excluding bookings for transportation equipment, orders were forecast to gain 0.6 percent, according to the survey median, after a previously reported 1.0 percent decrease.

Orders for commercial aircraft jumped 12.6 percent in July after rising 37.1 percent a month earlier. Demand for autos rose 9.8 percent, the biggest increase since January 2003, after declining 0.7 percent the prior month.

Boeing Co. registered 149 orders in July, up from 132 in June, according to company statistics released earlier this month. It shipped 33 planes, compared with 39 a month earlier.

Chicago-based Boeing Co. on July 25 said its quarterly profit and sales exceeded analysts' estimates and the planemaker raised its earnings forecast for the year on record orders.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, rose 2.2 percent after decreasing 0.1 percent in June. Shipments of those items, used in calculating gross domestic product, rose 0.5 percent after declining 0.8 percent.

Unfilled orders for such goods rose 1.5 percent.

Strength in Manufacturing

Other reports signal manufacturing continues to grow. Manufacturing expanded for the six months through July, rising at the fastest pace in June in 14 months, according to the Tempe, Arizona-based Institute for Supply Management.

Inventories of all durable goods rose 0.1 percent, after no change in June.

The gain in ex-transportation orders was led by rising demand for communications gear, machinery and primary metals. Defense equipment orders also rose.

Demand excluding military gear rose 4.9 percent in July after rising 2.3 percent in June.

Capital Spending

Frank MacInnis, chief executive officer of Norwalk, Connecticut-based EMCOR Group Inc., a leading installer of electrical and mechanical building systems, said capital spending remained on a steady trajectory, even in the face of the credit-market turmoil.

``It looks like corporate spending plans remain unimpaired for the time being,'' MacInnis said in a telephone interview. ``That speaks to the overall health of both the domestic economy and the remarkable strength of the world economy.''

Manufacturers continue to ramp up output after working off excess inventories built up late last year. Growth in industrial production, fueled by rising exports and increased business spending, is likely to outpace overall growth in the economy that may average about 2.5 percent in the second half, according to forecasts.

Stepped-up production of equipment and software, a gauge of business investment, contributed 0.2 percentage point to growth in the second quarter after being flat in the first quarter and dragging on growth in the second half of 2006.

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