Orders for Manufactured Goods Up, Building Lags

A big jump in demand for motor vehicles and aircraft sent factory orders up 3.1% in August, but construction spending languished as it has for most of the year, the Commerce Department said today.

“The expansion is getting a little less heated,” said Robert Dederick, chief economist for The Northern Trust Co. of Chicago.

“The real question is to what extent the forward pace is going to slow,” Dederick said. “Something more subdued would be better from the point of view of inflation.”

New orders for manufactured goods, especially aircraft, increased to a seasonally adjusted $226.6 billion in August, up 3.1% from July’s revised figure of $219.9 billion, the department’s Census Bureau said.

Excluding the volatile defense sector, new orders for all factory goods rose 2.7% in August after dipping 0.6% in July, the biggest increase since a 2.9% rise in June, the bureau said.

“What is most encouraging is . . . it’s consistent with a still high level of export orders,” said Lawrence Chimerine, chief economist for the WEFA Group of economic forecasters in Bala Cynwyd, Pa.

“It indicates exports and capital goods are still relatively strong and responsible for most of the forward momentum in the economy,” he said.

But sagging spending on both public and private building projects pushed construction spending down 0.6% in August, following a 0.7% rise in July, the bureau said in a separate report.

New construction projects were launched in August at a seasonally adjusted annual rate of $396.1 billion, down 0.6% from the revised July rate of $398.3 billion, the bureau said.

“When you cut through the ups and downs on a monthly level, construction is just not contributing to the recovery anymore,” Chimerine said.

Private construction dropped 0.2% from July to August, despite a 0.7% rise in residential construction that analysts had expected because housing starts picked up earlier this year.

Spending for new single-family housing units rose 1% even though interest rates began to rise after the Federal Reserve’s Aug. 9 hike in the benchmark discount interest rate.

Public construction, however, fared poorly in August, down 2.1% from the previous month.