Aircraft fuel durable-goods gains

July orders rise a record 22.6%, but nontransport sales off

In this photo taken Aug. 21, 2014, Orestes Perez, right, and his niece Yanuska Perez, check a 2013 Ford Fusion SE at a local dealership in Hialeah, Fla. The Commerce Department reports on business orders for durable goods in July on Tuesday, Aug. 26, 2014. (AP Photo/Alan Diaz)
In this photo taken Aug. 21, 2014, Orestes Perez, right, and his niece Yanuska Perez, check a 2013 Ford Fusion SE at a local dealership in Hialeah, Fla. The Commerce Department reports on business orders for durable goods in July on Tuesday, Aug. 26, 2014. (AP Photo/Alan Diaz)

WASHINGTON -- Business orders for long-lasting manufactured products rose by the largest amount on record in July. But most of the strength came from demand for commercial aircraft, which tends to fluctuate sharply from month to month.


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Outside of transportation, orders dipped.

Despite the broader weakness in July, most analysts said factory output will likely support solid economic growth in the second half of this year as companies increase their orders for the equipment they need to meet rising demand.

"When you get past the volatility of the aircraft, what you're seeing is continued firming in core business spending," said Tim Quinlan, an economist at Wells Fargo Securities in Charlotte, N.C. "The underlying trend here is ongoing moderate pace" of capital investment.

Paul Dales, senior U.S. economist at Capital Economics, noted that some manufacturers are starting to run out of production capacity and that loans to businesses are up sharply.

"We suspect that investment will prove to be one of the economy's bright spots in the second half of this year," Dales wrote in a research note.

Orders for durable goods in July rose 22.6 percent on a seasonally adjusted basis, the Commerce Department said Tuesday. The strength came from a 318 percent increase in orders for civilian aircraft, which helped lift orders for transportation equipment by a record 74.2 percent.

Excluding transportation, orders fell 0.8 percent, the biggest drop in this category since a 1.7 percent decline in December. And a key category that serves as a proxy for business investment plans dropped 0.5 percent. Still, that followed a sizable 5.4 percent rise in the previous month.

After going into reverse during the first three months of the year, mainly because of the severe winter, the U.S. economy rebounded in the April-June quarter: It grew at a solid annual rate of 4 percent as measured by the gross domestic product, the economy's total output of goods and services.

The jump in commercial aircraft orders reflected a good month for Boeing, which reported 324 orders for new aircraft in July, up from 109 orders in June. And this week, the company said it received an $8.8 billion order from an aircraft leasing company based in Singapore.

Automakers also had a strong month in July, with orders for motor vehicles and parts rising by 10.2 percent after a 1.3 percent drop in June.

Orders for nondefense capital goods excluding aircraft, a category viewed as a proxy for business investment, edged down 0.5 percent after rising 5.4 percent in June and dropping 1.4 percent in May.

Demand for machinery fell 1.8 percent. Orders for computers and other electronic products dropped 1.2 percent, and demand for primary metals such as steel dipped 0.3 percent.

Whirlpool, a Benton Harbor, Mich.-based appliance maker, is among companies expecting demand to improve the rest of this year after a weak, winter-depressed start to 2014.

"Macroeconomic indicators point to a strong second half as we're seeing the lowest unemployment rate since September 2008," Marc Bitzer, president of Whirlpool's North America unit, said during a July 23 earnings call. "Strong replacement demand will continue as consumers replace older appliances."

Home Depot, the largest U.S. home-improvement retailer, is benefiting from a jump in demand for appliances.

"The housing market remains a modest tail wind for our business," Chief Executive Officer Francis Blake said during an Aug. 19 earnings call. "We saw an acceleration of big-ticket transactions" in the second quarter, supporting "a continuing recovery in the U.S. home-improvement market."

Information for this article was contributed by Martin Crutsinger of The Associated Press and by Michelle Jamrisko and Chris Middleton of Bloomberg News.

Business on 08/27/2014

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