Durable goods continue to rise, suggesting recession is bottoming

The nation's "green shoots" thesis remains intact. Durable goods unexpectedly rose 1.8 percent in May, propelled higher by orders for machinery and airplanes, the U.S. Commerce Department announced Wednesday.

Durable goods orders have now risen in three of the past four months. Economists surveyed by Bloomberg News had expected May durable goods orders to fall 0.5 percent. Durable goods orders increased a revised 1.8 percent in April.

However, the effect of the recession can still be seen in the longer-term durable goods data: durable goods orders are still down 26.8 percent in the first five months of 2009, compared to the same period a year ago. Excluding transportation, durable goods rose 1.1 percent in May, after rising 0.4 percent in April.

Another sign of economic stabilization

Michael Moran, chief economist for Daiwa Securities America in New York, said the trend in durable goods orders is not an early 1960s-esque industrial surge, but he'll take the good news, just the same.

"New orders are beginning to stabilize," Moran told Bloomberg News Wednesday. "The economy seems to be on course for a gradual turn."

In May, most sectors registered better orders. Civilian aircraft orders surged 68 percent, machinery climbed 7.7 percent, computer orders increased 9.8 percent, non-defense capital goods climbed 4.8 percent, electronics goods (excluding semiconductors) increased 2.2 percent, primary metals rose 1.4 percent. On the downside, vehicle orders declined 8.1 percent and fabricated metals dipped 1.1 percent.

Meanwhile, shipments fell 2.1 percent, and inventories declined 0.8 percent.

Durable goods orders are new orders by stores and businesses for immediate and future delivery of factory hard goods. These orders measure how busy factories are likely to be in the immediate months ahead for such items as refrigerators, washers and dryers, cars, computers, and industrial machinery.

Investors should follow the statistic because rising durable goods orders usually indicates that businesses are experiencing sustainable growth and demand, which usually translates into higher revenue from them and increased production by the manufacturing sector -- two bullish signs for the U.S. stock market.

Economic Analysis: Modest good news for the economy: a third rise in four months for 'DG' points to a moderating recession, i.e. that a bottom is forming. Investors should keep in mind that there's been an enormous decline in production during the pronounced recession, but the end of declines in durable goods orders, combined with improvements in other key economic indicators (housing starts, job lay-offs) bodes well for gross domestic product. It's now reasonable to project an increasing GDP some time in the second half of 2009.
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