Orders for Durable Goods in U.S. Unexpectedly Gain

By Timothy R. Homan

Aug. 27 (Bloomberg) -- Orders for U.S. durable goods unexpectedly increased in July, indicating that growing demand from abroad is still helping companies weather a slump in domestic spending.

The 1.3 percent gain in bookings of goods meant to last several years matched the previous month's rise, which was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders rose 0.7 percent after a 2.4 percent increase a month earlier.

The boost to the U.S. from trade, which was the biggest in almost 28 years last quarter, may wane after figures this month showed shrinking economies in the euro region and Japan. ``Many'' Federal Reserve officials anticipate export gains will fade, minutes of their Aug. 5 meeting showed yesterday.

``The impact from global weakening so far on U.S. manufacturers remains modest,'' Aaron Smith an economist at Moody's Economy.com, said in an interview with Bloomberg Television. Because of domestic weakness, the economy may still slow or contract ``while simultaneously still having very modest weakness in manufacturing and capital spending,'' he said.

Treasuries fell after the report and stock futures gained. The benchmark 10-year note yielded 3.82 percent as of 8:40 a.m. in New York, up 4 basis points from yesterday.

Economists projected orders would be unchanged after a previously reported 0.8 percent increase in June, according to the median of 76 forecast in a Bloomberg News survey. Estimates ranged from a drop of 2.1 percent to a gain of 2.2 percent.

Forecast to Drop

Excluding transportation equipment, orders were projected to fall 0.7 percent, after an originally reported 2 percent gain in June, according to the Bloomberg survey. Estimates ranged from a decline of 2.9 percent to an increase of 0.6 percent.

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, increased 2.6 percent, the most since April. Shipments of those items, used in calculating gross domestic product, rose 0.6 percent following a 0.4 percent gain that was smaller than previously estimated.

Today's revisions will probably have little impact on economists' forecasts for growth in the second quarter. Revised gross domestic product figures from the Commerce Department, due tomorrow, may show the economy expanded at a 2.7 percent annual rate from April through June, up from an advanced estimate of 1.9 percent reported last month as exports jumped, according to a Bloomberg survey.

Business spending on new equipment and software dropped at a 3.4 percent annual pace last quarter, the second consecutive decline and the biggest since the first three months of 2004, according to the government's advance estimate issued last month.

Less Spending

Growth in coming quarters probably will slow as the effects of the federal tax rebates wear off and consumer spending weakens. Retail sales in July fell 0.1 percent, the first decline in five months, the Commerce Department reported Aug. 13.

``An increasingly strained consumer, deepening woes for the housing sector and a desire to pare inventories will all weigh on manufacturing output,'' Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report.

Factories are faring better than in past downturns, helped in part by a weak dollar that has helped boost exports. The Institute for Supply Management's manufacturing index for July fell to 50, the dividing line between growth and contraction, from 50.2 a month earlier. During the 2001 recession it averaged 43.5.

Beige Book

Manufacturing ``declined or remained weak in most districts,'' even as ``demand for exports remained generally high,'' the Fed said last month in its regional economic known as the Beige Book. Bank lending ``was generally reported to be restrained.''

Regional reports this month offered mixed impressions. The New York Fed's general economic index rose in August to 2.8, the highest level since January, from minus 4.9 a month earlier. The Philadelphia Fed said last week that manufacturing in the region shrank in August for a ninth straight month.

Gains in orders for metals, machinery, communications gear, automobiles and aircraft all contributed to the increase in demand last month.

Orders for transportation equipment rose 3.1 percent, led by a 28 percent jump in airplane bookings. Demand for automobiles climbed 1.2 percent.

Auto Production

The gain in autos may have reflected a continued rebound following the end of a strike at American Axle & Manufacturing Holdings Inc., the largest axle supplier for General Motors Corp. GM said June 16 it had returned to full production.

Such gains are unlikely to continue as sales slump. Auto- industry figures this month showed purchases of cars and light trucks in the U.S. fell in July to a 12.5 million annual rate, the lowest level since March 1993, as consumers faced record gas prices.

Some manufacturers are trimming staff to offset high energy costs. Alcoa Inc., the world's third largest aluminum producer, said last week that it will lay off 300 employees in Texas starting Aug. 31. The cuts come as a result of ``uneconomical power prices,'' the New York-based company said in a statement.

Commodity costs have subsided since mid-July, easing cost pressures. Crude oil futures dropped below $112 a barrel on Aug. 15 after peaking at $147 on July 11.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net