Core capital goods orders post largest rise in year

Wed Aug 26, 2015 10:11am EDT   BY LUCIA MUTIKANI

A gauge of U.S. business investment plans posted its largest increase in just over a year in July, underscoring the durability of the economic recovery despite a slowing global economy.

The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 2.2 percent last month, the biggest rise since June last year.

That was on top of an upwardly revised 1.4 percent increase in June and marked two straight months of hefty gains. Economists had forecast these so-called core capital goods

rising only 0.4 percent in July after a previously reported 0.9 percent increase in June.

The report added to employment, retail sales, housing and consumer spending data in highlighting the U.S. economy’s resilience. The string of upbeat reports suggests the Federal Reserve could still raise interest rates this year despite a global markets sell-off, triggered by concerns over China’s slowing economy, and policymakers’ concerns about low inflation.

“Gosh, all of this positive economic data … it really makes the Fed’s job very difficult,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto

Prices for U.S. Treasuries fell after the report, while the dollar rose to session highs against the euro and the yen. U.S. stock index futures extended gains.

Shipments of core capital goods, which are used to calculate

equipment spending in the government’s gross domestic product

measurement, rose 0.6 percent last month after an upwardly revised 0.9 percent increase in June.

Core capital goods shipments were previously reported to have risen 0.3 percent in June and the upward revision suggests second-quarter GDP could be bumped up when the government publishes it second estimate on Thursday.

June data on business inventories and construction spending have already suggested second-quarter growth could be revised to as high as a 3.3 percent annualized pace from the 2.3 percent rate reported last month.

A 4.7 percent increase in transportation equipment buoyed overall orders for durable goods – items ranging from toasters

to aircraft that are meant to last three years or more – which rose 2.0 percent in July.

Transportation was lifted by a 4.0 percent rise in orders for automobiles and parts, as automakers kept most assembly lines running during the summer instead of shutting them down for retooling.

That increase offset a 6.0 percent decline in aircraft orders. Boeing (BA.N) reported on its website that it had received 101 orders last month, down from 161 in June.

The upbeat durable goods report is good news for manufacturing, which is has been hobbled by a strong dollar, weak global demand and deep spending cuts in the energy sector in the aftermath of a plunge in crude oil prices.

Unfilled orders for durable goods rose 0.2 percent in July, the largest gain since November, after being flat in June. Durable goods inventories were unchanged after rising 0.4 percent in June.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)



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