U.S. Durable Goods Orders Drop in June

Despite decline, manufacturing sector showing signs of improvement

New orders for U.S. manufactured durable goods fell 2.5% in June after two months of increases, amid weakness in defense and aircraft purchases, government data showed July 29.

Orders dropped $4.1 billion from May to $158.6 billion, the Commerce Department reported.

The slump was steeper than the 0.6% decline expected, and followed a 1.3% rise in orders in May and a 1.4% rise in April.

The drop suggests ongoing weakness in the manufacturing sector, but a closer look at the data shows some signs of improvement, said Donald Norman, an economist for the Manufacturers Alliance/MAPI.

"The underlying data provide yet another sign that the economy has bottomed out and is starting on the road to recovery," he said. "Most of the weakness was in transportation equipment where new orders were down 12.8%. If transportation equipment orders are netted out, durable goods orders were up 1.1% in June compared to 0.8% in May. As auto manufacturers ramp up production this summer, transportation equipment activity should improve. Further, this is the sixth straight month inventories of durable goods declined. This means that manufacturers will have to increase production to accommodate demand as it picks up."

Excluding defense, where orders have declined in nine of the past 11 months, durable goods orders fell 0.7% from May.

Orders for durable goods excluding defense and aviation, which generally signal companies' investment in their means of production, climbed 1.4% in June, after leaping 4.3% in May.

Shipments of durable goods slipped 0.2% in June, after a steeper 2.6% decline in the preceding month.

IW staff contributed to this report

Copyright Agence France-Presse, 2009

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