U.S. Durable Orders Dropped in June by Most in Nearly Two Years
27 July 2016 - 11:20PM
Dow Jones News
WASHINGTON—Demand for long-lasting factory goods fell sharply in
June, a sign overseas turmoil is weighing on U.S.
manufacturers.
New orders for durable goods—aircraft, industrial machinery and
other products that are designed to last at least three
years—decreased a seasonally adjusted 4.0% in June from the prior
month, the U.S. Commerce Department said Wednesday. It was the
largest decline since August 2014.
Economists surveyed by The Wall Street Journal had expected a
decline of 1.4%.
Orders in May were revised down to a 2.8% decline, from an
earlier estimate of a 2.3% decrease. Through the first half of the
year, durable good orders were flat compared with the same period
in 2015.
The data suggest the manufacturing sector is struggling to find
its footing. And the latest figures mostly reflect demand before
the U.K. voted to leave the European Union in late June. After the
vote, the dollar strengthened further against the British pound and
euro, adding another potential headwind for manufacturers.
The June decline was led by weaker demand for civilian aircraft
and defense products, but there was a pull back in several other
categories including computers and metals.
Orders for durable goods excluding the transportation category
fell 0.5% from May, and orders excluding defense fell 3.9% last
month. Transportation demand declined 10.5%, largely due to a 58.8%
drop in civilian aircraft orders, a highly volatile category.
Separate data from Boeing Co., the largest aerospace company in the
U.S., showed 12 orders for large jets in June, down from 125 in
May.
Data on durable-goods orders can be uneven from month to month
and are subject to later revision.
In a positive note, a closely watched proxy for business
investment, new orders for nondefense capital goods excluding
aircraft, rose 0.2% in June from May, after falling the prior two
months. Still orders in the category were down 3.8% in the first
half of the year compared with the same period in 2015.
Such investments are an important ingredient in improving
employee productivity, workers' wages and corporate profits. A lack
of investment risks trapping the economy in a low-growth mode. A
measure of business investment fell in the first quarter by the
most since the recession ended, a major factor holding back overall
economic growth to a weak 1.1% annual pace.
After growing strongly in the earlier part of the expansion,
manufacturing output has mostly flattened in recent years. A sharp
drop in oil prices caused investment in the energy sector to dry
up. And a strengthening U.S. dollar has made U.S.-made goods more
expensive overseas.
How international events are impacting the U.S. economy is
likely on the minds of Federal Reserve officials, who are
concluding a two-day meeting Wednesday.
"When there's uncertainty, as everyone knows, there is an
inhibiting effect on investment decisions and maybe household
decisions as well," Fed governor Daniel Tarullo said earlier this
month. The central bank is expected to hold its benchmark interest
rate steady following the meeting.
The durable orders report stands in contrast to other recent
data suggesting the U.S. manufacturing sector stabilized in June. A
Federal Reserve report showed manufacturing output was modestly
above year earlier levels in June. And the Institute for Supply
Management's gauge showed manufacturing activity in June to its
highest level since February 2015.
Wednesday's report showed orders for motor vehicles and parts
rose 2.6% in June from May, and demand for machinery only slipped
0.1%.
Shipments of durable goods rose 0.4% during the month, but are
still running behind the rate set in the first half of last
year.
Write to Eric Morath at eric.morath@wsj.com and Ben Leubsdorf at
ben.leubsdorf@wsj.com
(END) Dow Jones Newswires
July 27, 2016 09:05 ET (13:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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