Durable Goods Orders Rise; Economy Seen Building Speed

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Durable goods
Gene J. Puskar/AP
By Lucia Mutikani

WASHINGTON -- Orders for long-lasting U.S. manufactured goods rose more than expected in June, pointing to momentum in the economy heading into the third quarter.

The Commerce Department said Friday durable goods orders increased 0.7 percent as demand increased from transportation to machinery and computers and electronic products.

The increase in orders for these goods, which range from toasters to aircraft that are meant to last three years or more, was above economists' expectations for a 0.5 percent rise and followed a 1 percent drop in May.

"This is consistent with broad, increasing demand throughout the economy," said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 1.4 percent after declining 1.2 percent the prior month. The gain in the so-called core capital goods outpaced economists' expectations for only a 0.5 percent increase.

The signs of an improvement in business investment bode well for stronger economic growth in the second half of the year. The economy performed poorly in the first six months of 2013, hurt by an unusually cold winter.

While second-quarter growth is expected around a 3 percent annual pace, it will be just be enough to regain ground lost in the January- March period. The government will release its first snapshot of second-quarter GDP next Wednesday.

Core capital goods shipments fell 1 percent in June. Shipments of core capital goods are used to calculate equipment spending in the government's GDP measurement. Core capital goods fell 0.1 percent in May and were down in the second quarter, which suggests another quarterly decline in business spending.

Orders for transportation equipment rose 0.6 percent as an increase in bookings for civilian aircraft offset a 2.1 percent drop in orders for automobiles, which was the largest since December.

Unfilled orders increased 0.8 percent last month after rising 0.7 percent in May, showing a building up of backlogs that will keep the nation's factories busy for a while.

Durable goods inventories rose 0.4 percent. That supports views inventories would be a boost to second-quarter growth. A slow pace of inventory accumulation was behind the sharp contraction in output in the first quarter.

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The 7 Worst Things You Can Do With a Pay Raise
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Durable Goods Orders Rise; Economy Seen Building Speed
You've been eyeing that fancy new car (or boat), or you've had your eye on upgrading your home, but you haven't been able to swing the down payment. Well, now you've got the money -- right?

Wrong. Just because you can now pony up a down payment, that doesn't mean you can afford the monthly payments you'll have for many years. By using your raise as a down payment on a purchase you still can't technically afford, you're locking yourself into years of unnecessary stress.
What if you're a renter? Sure, you could move into an apartment that costs $150 more a month. But that will be one more "permanent" expense on your budget. You can't easily get out of a lease if you change your mind, lose your job or decide you want to make a career shift.

Ask yourself if you really need a "better" apartment, or if you have all the space you need now -- in which case, you can use that extra cash each month on other things you really do need.
Now that you're in the money, you may be tempted to live the high life (or, at least, a higher life). Lots of people fall into this trap, and it's known as lifestyle inflation -- upgrading your standard of living with every pay raise so that you never use the money for more sensible things, like saving for retirement or paying down your credit card debt.

It's easy to feel the siren call of dinners at fancy restaurants, huge flat-screen TVs, and golf club memberships -- which seem like must-haves now that you're earning more. But making your lifestyle cushier every time your income rises is a vicious cycle, and it's a lot harder to downgrade to your former lifestyle than you may think. Don't feel compelled to up your spending just because you can.
OK, so you realize you shouldn't buy a fancy living room set or spring for a massive flatscreen -- but what about renting to own? You may not be able to afford to buy these things, but renting to own seems like it would be a decent alternative. Right?

Wrong. While the monthly payments at rent-to-own stores may seem reasonable, what you pay in the long run for a new Xbox or stainless steel refrigerator is much more than it would be if you purchased the item outright. For example, Consumer Reports in 2011 calculated that a Toshiba (TOSBF) laptop that cost $612 to buy outright would cost $1,872 at a rent-to-own store. Just like you shouldn't charge items you can't afford to buy, financing them through a rent-to-own agreement is a road to nowhere.
Speaking of financing purchases you can't afford –- avoid using your windfall as an excuse to buy stock on margin.

What's a margin purchase? If you want to buy a lot of stock, but you don't have enough money to do so, you can open a margin account. You'll only be required to put down the initial margin (similar to a down payment), and the brokerage firm lends you the rest of the money.

The trouble with margin buying -- as with any scenario in which you're trying to get more than you can really afford -- is that the longer you hold onto to this stock, more money you'll fork over in interest. And if you can't make your payments? The securities in your margin account serve as collateral.

The returns (and what if the stock goes down?) aren't worth the risk. If you can't afford to buy the shares on your own, don't buy them.
Remember that deli you've always dreamed of owning (even though you have no idea how to run a deli)? Or your brother-in-law's big wacky idea that he promises just can't fail?

Don't use your new income boost to create the down payment on a business loan for these ideas.

Its one thing to invest in an existing business that's rapidly growing. But don't use your bonus or some accumulated pay raise as a down payment on a business loan for an untested business.

Make sure that if you do choose to invest in a business or business idea, it's one that demonstrates a solid future with solid returns. And remember: You won't lose your shirt if you stick with cash investing, rather than leveraged deals.
You're certainly welcome to loan money to a friend or relative if you want, but if you do, you'd better be ready to kiss that relationship goodbye. The instant someone owes you money, relationships become strained, resentments boil up, and things get weird fast.

If you want to help out someone who's going through a rough patch, you're both better off if you find another way of doing so, like helping them revise their résumé to find a new job or offering to bring some groceries to their house.
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