Factory orders in July exceed forecast

LITTLE ROCK — Orders at American factories climbed in July more than economists had forecast, a sign that exports kept buoying the economy at the start of the third quarter, the government reported Wednesday.

Meanwhile, economic conditions in the St. Louis district of the Federal Reserve have softenedsince its last report July 23. The district includes all of Arkansas and parts of six other states.

Nationally, the 1.3 percent gain in factory bookings followed a 2.1 percent increase in June that was higher than previously estimated, the Commerce Department reported Wednesday in Washington.

The figures underscore the boost to manufacturers such asBoeing Co. and Deere & Co. from overseas demand for U.S. aircraft and machinery. Still, the stimulus from trade, which was the biggest in 28 years in the second quarter, may wane as the economies of Europe and Japan begin to contract and the dollar appreciates.

Trade is "one of the few bright spots" in an American economy that is "currently treading water," said Joseph Brusuelas, chiefeconomist at Merk Investments LLC in Palo Alto, Calif. "Over time, a stronger dollar will take the bloom off the rose of external demand a bit."

There was declining activity in services and manufacturing in the St. Louis Fed district. Compared with a year ago, retail sales were flat in July and the first half of August, while auto sales declined. Overall lending activity ata sample of banks in the district declined during the three-month period ending in July.

Home sales continued to decline throughout the St. Louis district. Compared with the same period in 2007, July 2008 year-todate home sales were down 21 percent in Little Rock. June 2008 year-to-date single-family housing permits fell in nearly all districtmetropolitan areas compared with the same period in 2007, including a 34 percent decline in Little Rock.

The 2008 second-quarter commercial real estate vacancy rate decreased compared with the first-quarter rate in Little Rock, although the downtown office vacancy rate increased in the city. Commercial building was slow in northeast Arkansas.

Development of major crops in the district remains behind its five-year average. A higher percentage of cotton was rated in poor condition than in the July report. As of Aug. 1, yields for the major crops in each district state were expected to be at least 88 percent of last year's yields.

Nationally, economists had forecast factory orders for July would rise 1 percent after a previously reported 1.7 percent gain in June, according to the medianestimate of 63 economists in a Bloomberg News survey.

Boeing, the world's secondbiggest aircraft maker, received 70 aircraft orders in July, up from 62 placed in June. Fifty of the orders were placed from abroad, theChicago-based company said last month.

Excluding demand for transportation equipment, which tends to be volatile, orders gained 1 percent after a 2.7 percent increase in June.

Nondurable goods orders, including those for food, petroleum and chemicals, advanced 1.2 percent after a 2.8 percent rise in June, Wednesday's report showed.

Factory inventories increased 0.5 percent, led by metals and machinery, and manufacturers had enough goods on hand to last 1.2 months at the current sales pace, down from 1.22 months in June.

Bookings for all durable goods, which make up just over half of total factory orders, were unrevised from the 1.3 percent gain the Commerce Department reported last week, Wednesday's report showed. Excluding transportationequipment, durable-goods orders rose 0.7 percent in July after a 2.4 percent increase in June.

Demand at petroleum refineries grew 0.6 percent in July, down from a 5.6 percent jump a monthearlier. Crude-oil prices are down about 26 percent since reaching a record high of $147.27 a barrel on July 11.

Bookings for capital goods excluding military hardware, a proxy for future business investment, strengthened 6.3 percent in July, Wednesday's report showed. Shipments of such goods increased 2.5 percent. Excluding aircraft, orders for defense goods rose 2.5 percent after a 1.6 percent gain a month earlier.

A report Tuesday showed U.S. manufacturing shrank in August for the first time in three months as companies cut back on production and trimmed payrolls to offset weakening consumer spending. The Institute for Supply Management's factory index slipped to 49.9 from 50 in July. Fifty is the dividing line between expansion and contraction.

Information in this article was contributed by David Smith of the Arkansas Democrat-Gazette and Timothy R. Homan and Courtney Dentch of Bloomberg News.