25 July 2013, 18:28  Durable goods orders surges up by 4.2 percent in June

With orders for transportation equipment showing a substantial increase, the Commerce Department released a report on Thursday showing that new orders for U.S. manufactured durable goods rose by much more than expected in the month of June. The report said durable goods orders surged up by 4.2 percent in June following an upwardly revised 5.2 percent jump in May. Economists had expected orders to rise by 1.5 percent compared to the 3.7 percent increase that had been reported for the previous month. The bigger than expected increase in durable goods orders in June was largely due to a 12.8 percent jump in orders for transportation equipment, which followed a 14.8 percent increase in May. Orders for commercial aircraft and parts soared by 31.4 percent, while orders for defense aircraft and parts surged up by 18.7 percent. While the increase in orders for commercial aircraft was partly due to a nearly 24 percent jump in orders reported by aerospace giant Boeing (BA), the increase in orders for defense aircraft surprised analysts in light of the sequester. Excluding the substantial increase in orders for transportation equipment, durable goods orders were unchanged in June compared to a 1.0 percent increase in May. A notable increase in orders for machinery was offset by decreases in orders for in computers and electronic products and electrical equipment. Meanwhile, the Commerce Department said orders for non-defense capital goods excluding aircraft, which is seen as an indicator of future business spending, rose by 0.7 percent in June following an upwardly revised 2.2 percent increase in May. Noting that the three-month-on-three-month annualized growth rate dipped only slightly to 8.3 percent from 9.1 percent, Paul Ashworth, Chief U.S. Economist at Capital Economics, said the data suggests business investment will rebound in the third quarter. However, shipments of non-defense capital goods excluding aircraft fell 0.9 percent in June after rising by 1.9 percent in May, pulling the three-month-on-three-month annualized growth rate into negative territory. "With the monthly construction data pointing to no more than a very modest increase in business investment in non-residential structures, the apparent decline in investment in equipment suggests that business investment fell slightly in the second quarter," Ashworth said. He added, "Admittedly, we were only expecting the smallest of gains anyway, but it does mean that there is now a good chance that second quarter GDP growth was even lower than 1.0% annualized." Next Friday, the Commerce Department is scheduled to release its monthly report on factory orders, which include orders for both durable and non-durable goods.

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