U.S Capital Goods Orders for July Jump

Orders for business equipment climbed in July for a second month, advancing the most since January and indicating U.S. companies are becoming less reluctant to invest.

Bookings for non-military capital goods excluding aircraft rose 1.6 percent, exceeding the most optimistic forecast in a Bloomberg survey, after a 0.5 percent June gain, Commerce Department data showed Thursday. Demand for all durable goods — items meant to last at least three years — rebounded 4.4 percent, the most since October.

The back-to-back increases in capital goods bookings, the first since January 2015, signal sales of such equipment will pick up after shipments weakened for a third straight month in July. Steadier orders would mark an improvement in demand for equipment that Federal Reserve policy makers have described as “soft”.

“As the decline in business investment slowly wanes, demand should accelerate and durable goods orders should resume their upward trend,” economists at Nationwide Mutual Insurance Co. wrote in an Aug. 22 note.

The Bloomberg survey median for non-defense capital goods orders excluding aircraft called for a 0.2 percent gain in July, with estimates ranging from a 0.3 percent decrease to a 1 percent gain. Bookings for all durable goods were forecast to rise 3.4 percent.

Shipments Drop

One caveat in the report was an unexpected decline in capital goods sales. Those shipments, used in calculating gross domestic product, dropped 0.4 percent. June shipments were revised down to a 0.5 percent decrease from a previously reported 0.2 percent drop.

Orders for commercial aircraft, which are volatile on a monthly basis, surged 89.9 percent after a 59.7 percent plunge in June.

Boeing Co., the Chicago-based aerospace company, said it received 73 orders for aircraft in July, up from 12 in the prior month. Deliveries for the month fell to 57 from 74.

Bookings for durable goods excluding transportation equipment climbed 1.5 percent in July after falling 0.3 percent a month earlier.

Orders for military capital equipment, another volatile category, increased 35.7 percent, and demand for non-defense durable goods rose 3.8 percent.

Durable goods inventories increased 0.3 percent, the most this year and reflecting more stockpiles of metals. Unfilled orders for non-defense capital goods excluding aircraft fell 0.1 percent.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell