US durable goods orders show surprising strength

New orders for long-lasting US manufactured goods jumped a surprising 1.3 percent in July as businesses ramped up spending plans and demand for a wide array of items rose, a government report showed on Wednesday. Strong demand for manufactured goods may ease some concerns about sagging US economic growth amid slowing consumer spending and the long-slumping housing market.
While strong exports have buoyed the factory sector, analysts fear a strengthening dollar and slowing economies overseas could diminish that contribution in the future. "The risk must be that in time the combination of slowing global growth and a stronger dollar crimps exports, but for now they are the lifeline," said Ian Shepherdson, an economist for High Frequency Economics in Valhalla, New York.
Orders for durable goods, items meant to last three years or more, were up after an upwardly revised 1.3 percent gain in June, previously reported as up 0.8 percent, the Commerce Department said. Analysts were expecting durable goods orders to remain unchanged from the previous month.
Resilient manufacturing could strengthen the argument of some Federal Reserve officials who have called for higher interest rates to combat inflation. The Fed has held interest rates steady at 2 percent since April despite persistently high inflation as a consensus has prevailed that low rates are necessary to counter soft labour markets and lingering financial turmoil.
At the same time, some analysts worry the economy could hit an air pocket in the second half of the year after being pushed ahead at a reasonable clip in the second quarter by government stimulus checks.
"Most of the increase in capital spending implied by these data is being undertaken by companies benefiting from the export boom; the domestic economy remains very weak indeed," Shepherdson said. Transportation orders rose 3.1 percent in July, the largest gain since February, on a 28 percent rise in civilian aircraft orders. Orders for machinery and primary and fabricated metals rose, while demand for computers and appliances waned.
Even when volatile transportation orders were stripped out, demand for durables rose 0.7 percent. Analysts had expected a 0.5 percent drop in durables orders excluding transportation. Non-defence capital goods orders excluding aircraft, seen as a barometer of business spending, jumped 2.6 percent, the steepest gain since April. Analysts were expecting that category to decline by 0.1 percent.