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Title: Durable Goods Orders Rise in U.S., Unemployment Claims Decline
Source: Bloomberg
URL Source: http://www.bloomberg.com/news/2012- ... n-june-on-aircraft-demand.html
Published: Jul 26, 2012
Author: Shobhana Chandra and Lorraine Woellert
Post Date: 2012-07-26 12:04:05 by Brian S
Keywords: None
Views: 537

Orders for U.S. durable goods climbed more than projected in June as a surge in demand for aircraft and military hardware overshadowed a slump in business equipment spending.

Bookings for goods meant to last at least three years rose 1.6 percent for a second month, a Commerce Department report showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 0.3 percent gain. A separate report today showed first-time claims for unemployment benefits declined more than forecast last week.

Orders for durable goods excluding the volatile transportation category unexpectedly dropped 1.1 percent in June, the most in five months. Corporate spending is contributing less to the expansion as cooler demand from U.S. consumers and weaker overseas sales crimp profits at companies such as Xerox Corp. (XRX)

Business investment, “which was a pillar of strength, has been chopped a bit,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, who correctly projected the gain in durables orders. “Global activity has shifted lower. It is difficult for demand to gather much momentum at this stage.”

First-time applications for jobless benefits fell 35,000 in the period ended July 21 to 353,000, the Labor Department said. Economists forecast 380,000 claims, according to the median estimate in a Bloomberg survey.

The report extended a period of volatility typically seen in July. Changes in the annual auto plant shutdowns that occur this time of year have made it difficult to adjust the data for seasonal variations, the Labor Department has said.

Global Demand

Statistical noise aside, slowing economies in Europe and China, which have reduced global demand for goods, may continue to curb employment. The U.S. presidential election and a looming battle over tax cuts and government spending may also be making businesses reluctant to hire.

“All in all, the labor market is gradually healing,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “We’ve got to take this report with a grain of salt. The jobs market is still tough and we’re setting ourselves up for a soft second half of the year.”

Stocks rose after the reports as European Central Bank President Mario Draghi said policy makers will do everything in their power to ensure survival of the euro. The Standard & Poor’s 500 Index rose 1.5 percent to 1,358.43 at 10:04 a.m. in New York.

Survey estimates of 78 economists for durable goods bookings ranged from a decline of 1.4 percent to an increase of 2.1 percent. Orders excluding transportation were projected to climb 0.1 percent.

Aircraft Bookings

Civilian aircraft bookings jumped 14.3 percent, while military orders surged 62 percent, the most since December 2007, today’s report showed. Boeing Co. (BA), the Chicago-based aerospace company, yesterday boosted its forecast for the second time this year amid increasing deliveries of commercial and military jets.

Orders for non-defense capital goods excluding aircraft dropped 1.4 percent after a 2.7 percent rise in the prior month. The median projection in the Bloomberg survey called for a 0.1 percent increase.

Demand for computers and communications equipment slumped 4.9 percent last month, while orders for machinery dropped 1.1 percent.

Bookings for non-defense capital goods excluding aircraft are considered a proxy for future business investment in items such as computers, engines and communications gear.

Capital Goods

Shipments of those capital goods, used in calculating gross domestic product, increased 1.2 percent after rising 1.1 percent the prior month. Unfilled orders for such equipment were little changed in June, indicating production may cool.

The expiration at the end of 2011 of a tax incentive allowing 100 percent depreciation on equipment purchases also may have prompted a slowdown in business investment this year. The allowance for 2012 is 50 percent.

Regional reports indicate a mixed picture for factories in July. Manufacturing in the Philadelphia region shrank for the third consecutive month, while New York-area factories grew at a faster pace than anticipated.

Xerox, the Norwalk, Connecticut-based provider of printers and business services, cut its full-year profit forecast as the economic slump in Europe crimped demand for technology.

“The economic uncertainty has created more pressure especially in Europe and especially in our technology business,” Ursula Burns, chief executive officer, said on a July 20 conference call with analysts.

Auto Industry

The auto industry has been one of the economy’s few bright spots. Vehicle purchases accelerated in June from the prior month, with General Motors Co., Ford Motor Co. and Chrysler Group LLC reporting sales that exceeded analysts’ estimates.

Today’s data showed orders for motor vehicles and parts fell 0.6 percent, the biggest decline since September.

At the same time, a pickup in home construction has helped some manufacturers. Caterpillar Inc. (CAT), the largest maker of construction and mining equipment, yesterday raised its full- year profit forecast on increased demand from North American builders.

Federal Reserve Chairman Ben S. Bernanke told Congress last week manufacturing has slowed and that policy makers stand ready to employ more stimulus if needed to help spur the world’s largest economy.

Bernanke said risks from Europe’s debt crisis and impending changes in U.S. fiscal policy are challenges for the economy.

“Economic activity appears to have decelerated somewhat during the first half of this year,” he said in testimony to Congress. The Fed is “prepared to take further action as appropriate to promote a stronger economic recovery.”

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