Orders for U.S. Durable Goods Increase More Than Forecast

Courtesy of Bloomberg by Michelle Jamrisko: Orders for U.S. durable goods rose more than forecast in June, showing a pickup in demand that will help propel manufacturing and the economy in the second half of the year.

Bookings for goods meant to last at least three years increased 4.2 percent, led by transportation equipment, after a revised 5.2 percent gain in May that was bigger than initially reported, the Commerce Department said today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 1.4 percent advance. Unfilled orders for big-ticket goods rose the most since December 2007.

aGains in residential real estate and motor vehicle sales are helping make up for weakness in overseas markets and benefiting companies such as Ford Motor Co. (F) and Whirlpool Corp. (WHR) A pickup in business investment amid lean inventories would provide a boost to manufacturing after a first-half slowdown.

The manufacturing sector seems to be growing, but not particularly strongly,” said David Sloan, senior economist at 4Cast Inc. in New York. “It’s a fairly positive report, though it’s not broad-based.” The figures suggest “there’s a recovery in place.”

Jobless Claims
Another report showed more people filed for unemployment benefits last week. Jobless claims rose by 7,000 to 343,000 in the period ended July 20, the Labor Department said.
Bookings increased last month for commercial aircraft, motor vehicles and machinery. Orders excluding transportation equipment, which is volatile month to month, were unchanged after a 1 percent advance in May that was twice as much as previously estimated.

Forecasts for all durable goods orders in the Bloomberg survey ranged from a drop of 4 percent to a 4 percent gain after a previously reported 3.7 percent gain in May.

Today’s figures showed bookings for commercial aircraft surged 31.4 percent after climbing 68.1 percent in May. Chicago-based Boeing Co. (BA) said it received 287 aircraft orders in June, up from 232 the previous month.

Motor Vehicles
Orders for automobiles and parts rose 1.3 percent after a 0.8 percent drop in May. Cars and light trucks sold at a 15.9 million annualized rate in June, the strongest since November 2007. Ford, the second-largest U.S. automaker, yesterday reported second-quarter net income of $1.23 billion, or 30 cents a share. Excluding some items, the per-share profit was 45 cents, exceeding the 37-cent average estimate of 17 analysts surveyed by Bloomberg.

Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in computers, electronics and other equipment, climbed 0.7 percent in June after rising 2.2 percent the prior month.
Shipments of those products, a measure used in calculating gross domestic product, fell 0.9 percent after rising 1.9 percent in May, a sign capital spending ended the second quarter on a weak note.

Macroeconomic Advisers in St. Louis, which updates its estimate of gross domestic product with each new piece of data, forecasts the economy grew at a 0.7 percent annual rate in the second quarter, down from a 1.7 percent estimate at the start of July. Second-quarter data are scheduled to be released July 31. The world’s largest economy expanded at a 1.8 percent pace in the first quarter.

Second Half
Growth is projected to pick up in the second half of the year, climbing 2.3 percent in the third quarter and 2.6 percent in the last three months of the year, according to the medians in a Bloomberg survey of 70 economists.
In a sign industrial production will be sustained, the backlog of orders to factories jumped 2.1 percent in June, the most since the end of 2007. Unfilled orders for non-military capital goods excluding transportation equipment climbed 1.7 percent last month after a 1.2 percent increase.

Housing market and automobile industry advances are bolstering the recovery, Federal Reserve Chairman Ben S. Bernanke said last week in testimony before the House Financial Services Committee.
“Housing prices going up are not only beneficial in terms of stimulating more construction,” Bernanke said. The gains in property values also improve household balance sheets and encourage consumer spending, he said.

Home Sales
Sales of new U.S. homes rose more than forecast in June to the highest level in five years, the Commerce Department reported yesterday. Progress in residential real estate is boosting demand for companies such as Benton Harbor, Michigan-based Whirlpool.
“We are seeing, we think, sustainable, profound demand recovery in the U.S. marketplace,” Chief Executive Officer Jeff Fettig said on a July 19 earnings call. “In North America, we’re increasing our industry demand assumption to be up 6 percent to 8 percent for the year as we continue to see very positive trends in U.S. housing as well as pickup in really all segments of the market from a demand perspective.”

Caterpillar Sales
At the same time, Caterpillar Inc. (CAT), the largest manufacturer of mining and construction equipment, cut its earnings forecast yesterday for a third straight quarter on slower commodity demand from emerging markets.
Today’s report showed orders for primary metals decreased 0.2 percent in June. With economic growth slowing in China, some of Caterpillar’s commodity-producing customers such as BHP Billiton Ltd. and Rio Tinto Group are cutting billions of dollars from their budgets.

Sales and profits in the second quarter were hurt by dealers reducing inventory by $1 billion, more than Caterpillar previously expected, Oberhelman said in the statement. Dealer machine inventory is expected to decline about $1.5 billion to $2 billion in the second half, and end the year about $3.5 billion lower than year-end 2012, he said.

“That means that we are underselling end-user demand this year, and it sets us up for better sales in 2014,” Oberhelman said.
Today’s report also showed total shipments of durable goods were unchanged in June after a 1.3 percent increase.

Category: General Update