Orders for US durable factory goods drop 7.3%

Demand for commercial aircraft and computers plummets

Orders for US durable goods recorded their biggest drop in almost a year in July, as demand for commercial aircraft plummeted and businesses spent less on computers and electrical equipment.

Bookings for goods expected to last at least three years, from aircraft to computers, dropped 7.3 per cent last month, commerce department data showed. It was the largest decline since August 2012 and ended three months of increases. Economists surveyed by Bloomberg had forecast a less severe 4 per cent fall.

Weaker overseas markets have hurt US exports and federal government spending cuts are taking their toll domestically, holding back manufacturing, which makes up about 12 per cent of the world’s largest economy. Even so, other data have indicated factory activity could pick up in the second half of the year.

“Given the lumpy nature of this particular series, we will caution about reading too much into this report outside of seeing it as a cautionary sign of cooling capital investment activity this quarter,” said Millan Mulraine, director of US research and strategy at TD Securities.

Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 3.3 per cent. That was the biggest decrease since February and followed four straight months of gains. It was estimated these so-called core capital goods would increase by 0.5 per cent, following a 1.3 per cent rise in June.

Shipments of those products, a measure used in calculating gross domestic product, declined 1.5 per cent after falling 0.8 per cent in June.

“The durable goods report is softer than we expected, but the declines came in the volatile defence and aircraft categories, which we do not view as indicative of broad-based economic weakness,” said Michael Gapen, senior economist at Barclays.

Durable goods orders were held down by a 19.4 per cent plunge in bookings for transport equipment. That reflected a 52.3 per cent drop in orders for civilian aircraft after climbing 33.8 per cent in June. Aircraft maker Boeing said it received 90 aircraft orders in July, down from 287 the previous month.

Excluding the volatile aircraft and transportation equipment components, orders declined 0.6 per cent after a 0.1 per cent gain in June. New orders of computers and electronic products fell 3.6 per cent.

One of the bright spots in the report was a gain in demand for motor vehicles. Orders for automobiles and vehicle parts increased 0.5 per cent after a 0.2 per cent gain in June.

A survey this month by the Institute for Supply Management, a trade group, said factory activity expanded in July at the fastest pace in two years. Companies hired more workers and new orders surged, both signs that output should rise in the coming months.

The US economy grew at a 1.7 per cent annualised rate in the second quarter after a 1.1 per cent gain for the prior three months.

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