Factory Orders Rebound on Strong Demand for Aircraft

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FILE - In this Feb. 11, 2015, file photo, Mark Moriarty works on a John Deere Tracked Feller Buncher/Harvester at John Deere Dubuque Works in Dubuque, Iowa. The Commerce Department reports on U.S. factory orders for June 2015 on Tuesday, Aug. 4, 2015. (Jessica Reilly/Telegraph Herald via AP) MANDATORY CREDIT
Jessica Reilly/Telegraph Herald via APAn employee works at John Deere Dubuque Works in Dubuque, Iowa.
By Lucia Mutikani

WASHINGTON -- New orders for U.S. factory goods rebounded strongly in June on robust demand for transportation equipment and other goods, a hopeful sign for the struggling manufacturing sector.

The Commerce Department said Tuesday new orders for manufactured goods increased 1.8 percent after declining 1.1 percent in May.

%VIRTUAL-pullquote-We are moving past the very weak period for the manufacturing sector from early on this year, but that activity has yet to meaningfully increase.%"We are moving past the very weak period for the manufacturing sector from early on this year, but that activity has yet to meaningfully increase," said Daniel Silver, an economist at JPMorgan (JPM) in New York.

Factory activity has been stymied by a strong dollar and spending cuts in the energy sector after last year's sharp plunge in crude oil prices. Tepid global demand also has weighed on manufacturing, which accounts for about 12 percent of the domestic economy.

Those factors have eroded the profits of multinational companies like Caterpillar (CAT), Procter & Gamble (PG), the world's largest household products maker, and Whirlpool (WHR) the global home appliances giant.

Though there are signs that the energy spending drag is easing, the dollar's strength will likely remain a constraint. The dollar has gained 15 percent against the currencies of the United States' main trading partners since June 2014.

Stocks on Wall Street were little changed, while prices for U.S. government debt fell. The dollar was largely flat against a basket of currencies.

Orders for transportation equipment surged 9.3 percent in June, reflecting a 65.4 percent jump in aircraft bookings.

There were increases in orders for machinery, furniture, fabricated metal products, electrical equipment, appliances and components.

Solid Inventories

The Commerce Department also said orders for non-defense capital goods excluding aircraft -- seen as a measure of business confidence and spending plans -- increased 0.7 percent instead of the 0.9 percent rise reported last month.

Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, increased 0.3 percent in June. Shipments were previously reported to have slipped 0.1 percent.

Manufacturing inventories increased a solid 0.6 percent, which was more than the government assumed in its second-quarter GDP snapshot published last week.

Coming on the heels of a report Monday showing stronger construction spending in May and April than previously reported, economists said the sturdy increase in factory inventories suggested that second-quarter GDP could be revised to as high as a 3 percent annual pace.

The Commerce Department reported last Thursday that the economy expanded at a 2.3 percent pace in the second quarter. It will publish its second GDP estimate for that quarter later this month.

In the wake of the construction data, economists had said they expected second-quarter growth would be raised by at least four-tenths of a percentage point to a 2.7 percent pace. They forecast factory inventories adding another 0.3 percentage point.

But with the inventories-to-shipments ratio at a lofty 1.35, compared to 1.30 last September, manufacturers might be sitting on a pile of unwanted goods, which could hurt production and weigh on growth in the coming quarters.

"It also highlights the probability that an unwinding of this stockpiling will almost assuredly result in a drag on GDP growth in the second half of the year," Tim Quinlin, an economist at Wells Fargo Securities in Charlotte, North Carolina.

9 Numbers That'll Tell You How the Economy's Really Doing
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Factory Orders Rebound on Strong Demand for Aircraft
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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