Orders for US Capital Equipment Climb by Most Since January

Aug. 25, 2016
Back-to-back increases in capital goods bookings signal sales of such equipment will pick up after shipments weakened for a third straight month in July.

Orders for business equipment climbed in July for a second month, advancing the most since January and indicating U.S. companies are becoming less reluctant to invest.

Bookings for non-military capital goods excluding aircraft rose 1.6%, exceeding the most optimistic forecast in a Bloomberg survey, after a 0.5% June gain, Commerce Department data showed Thursday. Demand for all durable goods -- items meant to last at least three years -- rebounded 4.4%, the most since October.

The back-to-back increases in capital goods bookings, the first since January 2015, signal sales of such equipment will pick up after shipments weakened for a third straight month in July. Steadier orders would mark an improvement in demand for equipment that Federal Reserve policy makers have described as “soft.”

“As the decline in business investment slowly wanes, demand should accelerate and durable goods orders should resume their upward trend,” economists at Nationwide Mutual Insurance Co. wrote in an Aug. 22 note.

The Bloomberg survey median for non-defense capital goods orders excluding aircraft called for a 0.2% gain in July, with estimates ranging from a 0.3% decrease to a 1% gain. Bookings for all durable goods were forecast to rise 3.4%.

Capital Goods Shipments Drop

One caveat in the report was an unexpected decline in capital goods sales. Those shipments, used in calculating gross domestic product, dropped 0.4%. June shipments were revised down to a 0.5% decrease from a previously reported 0.2% drop.

Orders for commercial aircraft, which are volatile on a monthly basis, surged 89.9% after a 59.7% plunge in June.

Boeing Co., the Chicago-based aerospace company, said it received 73 orders for aircraft in July, up from 12 in the prior month. Deliveries for the month fell to 57 from 74.

Bookings for durable goods excluding transportation equipment climbed 1.5% in July after falling 0.3% a month earlier.

Orders for military capital equipment, another volatile category, increased 35.7%, and demand for non-defense durable goods rose 3.8%.

Durable goods inventories increased 0.3%, the most this year and reflecting more stockpiles of metals. Unfilled orders for non-defense capital goods excluding aircraft fell 0.1%.

By Shobhana Chandra

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Licensed content from Bloomberg, copyright 2016.

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