U.S. Goods Orders Lower than Expected

Aug. 25, 2010
Increase was only 0.3%

Orders for big-ticket items in July but were much lower than expected, according to government data released on August 25. New orders for manufactured durable goods -- items such as planes, cars, refrigerators and computers -- increased 0.3% to $193 billion following two consecutive monthly decreases, the Commerce Department said.

Most economists had expected orders to rebound by a stronger 3%.

The small July rise was on the back of transportation equipment, mostly nondefense aircraft and parts. Excluding transportation, new orders decreased 3.8%. Capital goods shipments rose 0.9% while overall shipments increased 2.2%, and inventories rose 0.6% in July.

Core capital orders -- a proxy for future business investment -- fell 8.0%.

"The advance durable goods report for July is disappointing, like most other statistics reported for last month," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. "Although total durable goods orders increased a very large gain in new orders for civilian aircraft in July accounted for more than all the gain. Major declines in new orders for machinery, computer, and electrical equipment (including appliances) were disappointing.

"A primary indicator of equipment expenditures is nondefense capital goods excluding aircraft. New orders for this segment fell 8% in July, wiping out previous gains in May and June. Nevertheless, thanks to a fast start to the year, the indicators cumulative orders are almost 16 percent above year ago levels in the first seven months of 2010.

"Statistical evidence for July clearly show that the U.S. economy is decelerating in its pace of growth," Meckstroth added. "Business spending continues to grow at a faster rate than the overall economy due to strong profitability and excessive capital spending restraint during the recession. With the initial return to growth, aided by an inventory swing, there was immediate need for repair and replacement equipment. Now that it seems clear that the recovery is moving at a slow and uneven pace, the need for equipment is less pressing and the impetus for growth switches to one of enhancing productivity to cut costs."

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