Durable-Goods Orders Rise 1.6% in July
Orders for costly manufactured goods staged a broad-based surge in July, the Commerce Department reported Friday, surprising financial markets and raising questions as to whether the economy is indeed slowing, as analysts had thought.
Orders for durable goods ranging from communications equipment to computers climbed 1.6% last month to a seasonally adjusted $172.7 billion after falling 0.2% in June, according to revised figures for that month, and increasing a robust 4.2% in May.
Analysts said manufacturing industries are headed into the second half of the year on a much better footing than had been expected previously, with brisk demand freeing them of the burden of bulging inventories.
“The manufacturing sector had a rough patch, but it now seems to be over,” said Pierre Ellis, an economist with Lehman Bros. in New York. “Demand clearly is there, and what is striking is the breadth of the increase in it.”
Every category of durable good except transportation equipment saw an increase in orders in July. Weakness in demand for ships and military tanks left transportation orders overall flat, although orders for new cars and parts did increase from June. Excluding that category, orders were up 2.1% for the fourth-straight monthly advance.
Shipments of finished products gained solidly as well, and order backlogs swelled for the 10th month out of the last 11, primarily because there were more orders for new commercial aircraft and parts.
The durable-goods report renewed inflation worries and sent bond prices sharply lower.
The yield on the benchmark 30-year U.S. Treasury bond climbed to 6.94% on Friday from 6.84% late Thursday. That put stocks under pressure, and the Dow Jones industrial average fell 10.73 points to 5,722.74.
“This number fits into the story of the economy retaining momentum in the summer,” said economist Russell Sheldon of Mellon Bank in Pittsburgh.
Still, some analysts questioned the data.
“The durables report seems out of line with other measures of industrial activity, notably reports from purchasing managers,” said economist Cheryl Katz of Merrill Lynch & Co. in New York. “We suspect that the next month’s data will be considerably more subdued.”
The National Assn. of Purchasing Management reported earlier this month that a survey of its members suggested that manufacturing growth had slowed unexpectedly in July, with a drop in orders being part of the picture.
Durable-goods orders are considered a key gauge of the manufacturing sector, because continued gains can mean increased production and more jobs.
Orders for electronic and other electrical equipment posted the largest gain, up 4.7% after a strong 3.9% advance in June. The increase was led by communications equipment.
Orders for industrial machinery and equipment and for primary metals both rose 2.1%. Orders for nonmilitary capital goods excluding aircraft jumped 3.6% for a second straight gain.
These orders often are a barometer of business plans to expand and modernize.
Orders for military equipment, a volatile category, plunged 36.5%, reflecting the weakness in shipbuilding and tanks. These orders posted a 26.4% increase in June.
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Durable Goods
Seasonally adjusted new orders, in billions of dollars:
july, 1996: $172.7
* Source: Commerce Department
