Durable Goods Orders Surge 22.6% in July -- Update

By Dow Jones Business News, 
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By Jonathan House

WASHINGTON--Orders for big-ticket manufactured goods jumped to a record in July thanks to a surge in aircraft purchases, while underlying measures indicated broad momentum for business spending.

Purchases of durable goods--products such as airplanes, cars and heavy machinery designed to last at least three years-- rose a seasonally adjusted 22.6% to $300.1 billion in July from the prior month, the Commerce Department said Tuesday. That was the sharpest increase and highest level in records going back to 1992.

Economists surveyed by The Wall Street Journal had forecast the figure would come in at a 7.5% increase over June.

Excluding aircraft and other transportation equipment, orders fell 0.8% in July from the prior month's upwardly revised gain of 3%, and were up 6.6% from a year earlier.

"Through the volatility, the trend in orders growth looks fairly strong, " said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

The surge largely reflected strong sales at Boeing Co., which had reported signing purchases for a record 324 planes last month. Because of the time it takes Boeing to produce and deliver planes, the jump in orders isn't expected to provide an immediate lift to the economy. And aircraft orders likely will fall from their record July levels in the coming months.

But indications of demand for a broad array of products should buoy the economy in the second half of the year. One key measure of business investment--orders for nondefense capital goods excluding aircraft--fell 0.5% in July from June, but the prior month's gain was revised up to a 5.4% rise. July orders in this category were 8.3% higher than a year earlier, the fastest rate of annual increase since December.

"This was a healthy report that suggests that capital spending ended the second quarter on solid footing, with that positive momentum carrying over to start the third quarter," economists at RBS Securities said in a note to clients.

After posting double-digit annual growth early in the recovery, business investment sagged in 2012 and early 2013. More recently, corporate America has been spending more freely, helping to lift the overall economy this spring after unusually harsh weather disrupted output over the winter months. Many economists expect business spending to strengthen further in the months ahead.

Following Tuesday's report, the forecasting firm Macroeconomic Advisers raised its forecast for annualized GDP growth in the third quarter to 3.2% from 3.1%. Morgan Stanley, which also calculated the impact of Tuesday's data on inventories and exports, bumped its third-quarter GDP growth forecast to 3.5% from 3%. It raised its estimate for second-quarter GDP growth to 3.8% from 3.7%. J.P. Morgan Chase economists also raised their estimate, to 3.7% from 3.6%.

The Commerce Department will release revised second-quarter GDP data Thursday. In its first estimate, the agency said the economy expanded at a 4% annual rate.

Other recent data also has pointed to rising spending on manufactured goods. U.S. industrial production--a broad gauge of output from factories, utilities and mines--rose by 0.4% in July, maintaining the steady pace of growth from the prior month.

The Institute for Supply Management's gauge of manufacturing activity rose to 57.1 in July, its highest level since April 2011. Readings over 50 indicate expansion for the sector.

Write to Jonathan House at jonathan.house@wsj.com


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