Orders for Durable Goods Surge on Commercial Aircraft Demand

Tuesday, 26 Aug 2014 09:10 AM

 

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Orders for U.S. durable goods jumped in July by the most on record as bookings surged for commercial aircraft. Demand for business equipment eased after the biggest gain in seven months.

Bookings for all goods meant to last at least three years rose 22.6 percent, the Commerce Department said Tuesday in Washington. A U.K. air show helped spark a 318 percent jump in plane orders, the most since January 2011. Orders for non-military capital goods excluding aircraft fell 0.5 percent last month after a June increase of 5.4 percent that was the strongest since November.

Prospects that demand will be sustained are giving companies reason to make larger investments in their operations. Persistent job growth that keeps households spending, along with a pickup in overseas markets, would help provide an added boost for manufacturers.

“When you get past the volatility of the aircraft, what you’re seeing is continued firming in core business spending,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The underlying trend here is ongoing moderate pace” of capital investment, he said.

The median forecast of 78 economists surveyed by Bloomberg estimated total durable goods orders would climb 8 percent. June orders rose a revised 2.7 percent. Estimates ranged from a 0.5 percent gain to a 38.1 percent surge after a previously reported June increase of 1.7 percent.

Motor Vehicles

The July gain in durables orders also reflected increased demand for automobiles. Bookings for motor vehicles climbed by the most since August 2009.

A boost in transactions for aircraft helped lift the overall goods figure. Boeing Co., the Chicago-based aerospace company, said it received 324 orders for planes last month, almost three times the 109 tally in June. The company’s reported deals picked up at the Farnborough Air Show in England last month.

Orders excluding transportation equipment decreased 0.8 percent in July after a 3 percent increase a month earlier.

Non-military capital goods excluding aircraft orders were projected to rise 0.2 percent. Such bookings are considered a proxy for future business investment.

Capital Equipment

Shipments of such goods, used in calculating gross domestic product, increased 1.5 percent in July after rising 0.9 percent the prior month, today’s report showed. The June reading had previously been reported as a 0.3 percent decline.

The data corroborate other surveys indicating factory activity has gained traction in recent months. The Institute for Supply Management’s index climbed in July to its strongest level since April 2011.

Business investment in equipment climbed at a 7 percent annualized rate in the second quarter, rebounding from a 1 percent annualized decline in the first three months of the year, according to the Commerce Department’s report on gross domestic product.

Motor vehicle assembly lines are humming as demand lingers near an eight-year high. Cars and light trucks sold at a 16.4 million pace in July, down from the 16.9 million the prior month that was the fastest rate since July 2006.

Some manufacturers are also getting a boost as housing shows uneven progress in rebounding from a slowdown earlier this year. Sales of previously owned homes rose last month at their strongest pace since September, according to data from the National Association of Realtors last week.

Appliance Demand

Whirlpool Corp., a Benton Harbor, Michigan-based appliance maker, is among companies expecting demand to improve the rest of this year after a weak, winter-depressed start to 2014.

“Macroeconomic indicators point to a strong second half as we’re seeing the lowest unemployment rate since September 2008,” Marc Bitzer, president of Whirlpool’s North America unit, said on a July 23 earnings call. “Strong replacement demand will continue as consumers replace older appliances.”

Home Depot Inc., the largest U.S. home-improvement retailer, is benefiting from a jump in demand for appliances.

“The housing market remains a modest tailwind for our business,” Chief Executive Officer Francis Blake said on an Aug. 19 earnings call. “We saw an acceleration of big-ticket transactions” in the second quarter, supporting “a continuing recovery in the U.S. home-improvement market.”

Monthly job gains that are on pace for their best year since 1999 will provide the wherewithal for increased consumer spending. Employers have added an average 230,000 to payrolls a month so far this year. Economists forecast an average 220,000 jobs on average will be added through year-end, according to the median in a Bloomberg survey conducted Aug. 8-13.

© Copyright 2014 Bloomberg News. All rights reserved.

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