Rise in Business Spending, Jobs Data Suggest More Growth

Durable Goods
J Pat Carter/AP
By Lucia Mutikani

WASHINGTON -- New orders for capital goods by U.S. businesses rebounded in August, pointing to underlying strength in the economy.

The economic outlook also got a lift from other data Thursday showing only a marginal increase in the number of people filing new claims for unemployment benefits last week.

"This is supportive of the U.S. economy continuing to expand at a healthy pace in the second half of the year," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.6 percent. Orders for the so-called core capital goods orders fell by a revised 0.2 percent in July.

Last month's increase was in line with expectations. Core capital goods orders were previously reported to have declined 0.7 percent in July.

While orders for long-lasting manufactured goods, items ranging from toasters to aircraft that are meant to last three years or more, fell a record 18.2 percent, that was payback for an aircraft-driven jump in July.

Durable goods orders increased 22.5 percent in July, the largest gain since the government started tracking the series in 1992, as civilian aircraft orders soared 315.6 percent. Orders for the volatile transportation category declined 42 percent last month as aircraft orders tumbled 74.3 percent.

Boeing (BA) reported on its website that it had received 107 orders last month, a third of July's outsized gains. Automobile orders fell 6.4 percent following a 10 percent increase the prior month.

The underlying trend in new orders, however, is up and further gains are likely in the months ahead.

A manufacturing survey early this month showed a measure of new orders jumped to a near 10½ year high in August and businesses showed an increased appetite for capital spending.

Job Market Firming

In a separate report, the Labor Department said initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 293,000 for the week ended Sept. 20.

That was below economists' forecasts for a rise to 300,000 and left the four-week average of claims down 1,250 at 298,500. Claims are near their pre-recession levels, a sign that the labor market is firming despite August's cooling in job growth.

"The claims data continue to suggest that the slowing in payroll growth in August was an aberration that will likely either be revised higher or we will likely see some catch-up in the months ahead," said John Ryding, chief economist at RDQ Economics in New York.

While a third report from information services firm Markit showed a slight ebbing in activity in the services industry this month, employment growth accelerated and the rate of backlog accumulation was the fastest since October 2009.

U.S. financial markets were mixed, with prices for U.S. government debt rising. U.S. shares were trading weaker, while the dollar was up against a basket of currencies.

The U.S. economy is bucking a slowing global economy, supported by firming consumer spending and increased business willingness to invest in equipment and capital projects.

Last month, shipments of core capital goods edged up 0.1 percent. The increase in July's shipments was, however, revised up to 1.9 percent from 1.5 percent. Shipments of these goods are used to calculate equipment spending in the government's gross domestic product measurement.

"The third quarter is setting up to be one of the strongest for capital spending in a year or so," said Chris Low, chief economist at FTN Financial in New York.

As a result, forecasting-firm Macroeconomic Advisers raised its third-quarter growth estimate by two-tenths of a percentage point to a 3.6 percent annual pace. BNP Paribas saw a 0.2 percentage point upside risk to its 3 percent rate forecast.

Unfilled orders for core capital goods increased 1.2 percent last month after rising 1 percent in July, a building up of backlogs that will keep the nation's factories busy for a while.

"The solid pace of manufacturing activity in recent months is not going away any time soon," said Anthony Karydakis chief economic strategist at Miller Tabak in New York.

9 Numbers That'll Tell You How the Economy's Really Doing
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Rise in Business Spending, Jobs Data Suggest More Growth
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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