Higher durable-goods orders ease economic worries
Wednesday, August 24, 2011
WASHINGTON (AP) — A surge in demand for autos and aircraft drove orders for long-lasting manufactured goods higher in July, easing fears that the economy might be on the verge of another recession.
The rebound in the auto industry helped offset a decline in orders for most other factory goods.
Stocks rose after the better-than-expected report showed the biggest increase in durable-goods orders since March, when the Japan earthquake disrupted supply chains and slowed auto production. The Dow Jones industrial average gained more than 50 points in morning trading. Broader indexes also increased.
Overall orders for durable goods rose 4 percent last month, the Commerce Department said Wednesday.
The report “reinforces other data that the economy wasn’t at serious risk of recession through July,” said David Resler, chief U.S. economist at Nomura Securities. Retail sales and industrial production also held up well last month, he said.
The data did offer a cautionary signal: a key category that tracks business investment plans fell 1.5 percent, the biggest drop in six months. That suggests businesses are pulling back on spending. Orders in all other major categories dropped, including computers, electronic goods, and machinery.
Resler and other economists also warned that the turmoil in the stock markets could cause businesses to pull back further this month.
“It remains to be seen whether firms cancelled or postponed planned orders,” Paul Dales, an economist at Capital Economics, said in note to clients.
A durable good is a product that is expected to last at least three years. Economists view the report cautiously because orders tend to fluctuate from month to month.
Excluding transportation goods, orders rose just 0.7 percent. It was the third straight gain in so-called core orders. Demand for primary metals surged 10.3 percent, the most since last November. Some of that increase was likely due to higher prices for metals such as copper.
Overall, orders rose to a seasonally adjusted $201.5 billion in July. That is 35 percent higher than the recession low hit in April 2009. But it is still 18 percent below the level in December 2007, when the recession began.
Demand for autos and auto parts jumped 11.5 percent, the most in eight years. Aircraft orders, a volatile category, soared 43.4 percent, after falling 24 percent in June.
Auto production is rebounding after a slowdown caused by the Japan earthquake. The Federal Reserve reported last week that factory output rose 0.6 percent in July, mostly because of an increase in auto production.
A big order by American Airlines helped boost the aircraft sector. American Airlines ordered 100 new Boeing 737 planes with fuel-efficient engines in July.
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