Durable Goods Orders Soar on Surge in Aircraft Demand

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Durable Goods Orders Soar on Surge in Aircraft Demand
Bruce Smith/APWorkers assemble a Boeing 787 Dreamliner at Boeing's plant in North Charleston, S.C.
By Lucia Mutikani

WASHINGTON -- Orders for long-lasting U.S. manufactured goods posted their biggest gain on record in July on strong international demand for aircraft, but the underlying trend remained consistent with a steady pace of economic growth.

Durable goods orders, items ranging from toasters to aircraft that are meant to last three years or more, jumped 22.6 percent last month after an upwardly revised 2.7 percent increase in June, the Commerce Department said on Tuesday.

Transportation orders rose a record 74.2 percent as bookings for civilian aircraft more than tripled. Boeing (BA) had said earlier it received a record 324 aircraft orders in July.

Many of the orders, including 150 planes by the Dubai-based airline Emirates, were for expensive models, some still under development. It will take at least 10 years for the resulting increase in production to filter through to U.S. gross domestic product.

Outside of transportation, demand was decidedly softer. Still, upward revisions to the data for June as well as rising shipments and orders backlogs showed the factory sector remained on firm ground.

"This report reinforces the message that manufacturing growth is picking up and is likely to support stronger GDP growth in the second half of the year," said John Ryding, chief economist at RDQ Economics in New York.

U.S. stocks traded higher, with the S&P 500 index near an all-time high. Boeing was little changed. Prices for U.S. Treasury debt were up, while the dollar was flat against a basket of currencies.

Separately, the Conference Board said consumer confidence hit its highest level in nearly seven years in August. A gauge of households' perceptions of the labor market touched its best level since July 2008.

That also boosted views that the economy remains on a solid growth path, even though another report showed a deceleration in house price growth in June.

The S&P/Case Shiller's broader house price index rose 6.2 percent in the 12 months to June, the smallest gain since November 2012, compared to a 7 percent rise in May.

Strong Orders for Automobiles

While the outsized order increase from Boeing dominated the surge in durable goods orders last month, orders for autos increased 10.2 percent after declining 1.3 percent in June.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.5 percent in July.

The decline, however, followed an upwardly revised 5.4 percent advance in June. Core capital goods orders were previously reported to have increased 3.3 percent in June.

Core capital goods shipments increased 1.5 percent last month. Shipments of core capital goods are used to calculate equipment spending in the government's GDP measurement.

"That suggests that capital spending ended the second quarter on solid footing, with that positive momentum carrying over to start the third quarter," said Omair Sharif, senior economist at RBS in Stamford, Connecticut.

Other details of the report also favor manufacturing in the months ahead.

Unfilled orders for core capital goods increased 1.1 percent last month after rising 1.7 percent in June, showing a steady pipeline of work that will keep the nation's factories busy for a while.

Durable goods inventories rose 0.5 percent in July, matching the gain in the prior month, suggesting inventory accumulation could add to third-quarter growth after helping to boost output in the second quarter.

Durable Goods Orders Soar on Surge in Aircraft Demand
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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