Orders to U.S. factories for big-ticket manufactured goods posted a sizable gain in June, but the advance was fueled by higher demand for commercial aircraft.
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In early London trade, the yield on the benchmark 10-year Treasury notes was at 2.25 percent and down 2.5 basis points on the day.
New orders for transportation equipment leaped 8.9 percent.
“Despite a stronger than expected rise in June orders, business investment remains firmly in the red”, said Lindsey Piegza, chief economist with the investment firm Stifel Fixed Income. Durable goods inventories increased 0.4 percent, the largest gain since last December, after falling 0.2 percent in May. May durable goods orders fell a revised 2.1 per cent compared with the previously reported 2.2 per cent decrease. Overall demand for transportation goods increased 8.9 per cent. Excluding this often volatile category, orders were up 0.8 per cent in June, the best showing outside of transportation in 10 months. Still, core orders are running 3.4% below 2014 levels halfway through the year. The government will release its first estimate of GDP growth in the spring on Thursday. Orders for non-defense aircraft and parts were up 66.1 per cent in June.
Durable goods orders are likely to be overly affected again by the monthly swings in aircraft orders from Boeing orders, which showed a spike in June. Meanwhile, a key category that reflects business investment rebounded after two months of declines.
Economists expect the second quarter reading to recover.
In a preview of the economic data this week, Wells Fargo’s John Silvia wrote: “New orders for durable goods have been tepid over the first half of the year as a strong dollar has weighed on exports and low oil prices have sapped demand for products related to energy investment”. “Without business development, hiring will remain lackluster and, more importantly, income growth will remain stagnant, continuing to restrain the American consumer”. Still, other recent data indicate the manufacturing sector is improving as the economy shores up.
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And a survey of supply-chain executives conducted by the Institute for Supply Management found renewed optimism among purchasing managers.
