Durable Goods Orders Jump 6% : Recent Signs of Sluggishness Offset by August Increase
Orders for “big ticket” durable goods jumped 6% in August, the Commerce Department reported Friday, suggesting to analysts that recent signs of sluggishness in the economy are probably temporary.
The department said orders jumped to a seasonally adjusted annual rate of $123.1 billion last month following a huge 7.4% decline in July and an 8.7% increase in June.
The volatility in the month-to-month total reflects wide swings in demand for transportation and military goods, but economists said the underlying trend portrays a vigorous U.S. manufacturing sector.
“The 6% overstates how strong the economy is, but it’s still in pretty good shape,” said Maury Harris, chief economist of Paine Webber Inc. “Even if you exclude transportation, orders were still up 1%, and that’s pretty good, an annual rate of 12% for just the one month.”
Other government reports for August have pointed to some softening in the economy’s robust rate of growth through midyear. Unemployment rose from 5.4% to 5.6%, retail sales fell 0.2% and housing activity dipped 3.3%.
However, the strong demand for durable goods, coupled with a 1.2% rise in unfilled orders, indicates that factories will be humming in the months ahead, analysts said.
“This throws some cold water on the view that the economy slowed down dramatically in August,” said John Hagens, an economist with Wefa Group, a Bala Cynwyd, Pa., forecasting firm.
“There are signs of weakness on the consumer demand side of the economy, but this is really the first sign that counterbalances some of that by suggesting that business spending and exports remain strong,” he said.
Manufacturing has been the strongest area of the economy this year because a weaker dollar has spurred a boom in sales of U.S. goods overseas. That, in turn, has sparked businesses to increase spending to modernize and expand the capacity of factories.
Orders in the key category of non-defense capital goods, a good barometer of business expansion plans, were up 5.4% in August to $38.2 billion, following gains of 2.2% in July and 12.5% in June.
However, the very strength of the economy has raised concern that inflationary pressures are building. Thus, bond traders, who fear that inflation will erode the value of their investment, bid interest rates down on the weak employment and retail sales reports and sent interest rates up in early trading Friday following the durable goods report.