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Friday 25 July 2014

US durable goods post largest drop in nearly a year

Published 26/08/2013|14:17

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Orders for long-lasting U.S. manufactured goods recorded their biggest drop in nearly a year in July and a gauge of planned business spending on capital goods tumbled, casting a shadow over the economy early in the third quarter.

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The Commerce Department said on Monday durable goods orders dropped 7.3pc as demand for goods ranging from aircraft to computers and defense equipment fell.

That was the biggest decline since last August and snapped three consecutive months of gains.

Orders for these goods, which range from toasters to aircraft, had increased 3.9pc in June.

Economists polled by Reuters had expected durable goods orders to fall 4pc percent.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 3.3pc, breaking four straight months of gains.

It was the biggest fall since February.

Orders for these so-called core capital goods increased by a revised 1.3pc in June.

Economists had expected this category to rise 0.5pc after a previously reported 0.9pc gain in June.

The decline in orders for both durable and capital goods suggested manufacturing will probably not bounce back as quickly as many economists had expected after hitting a speed bump early in the year.

That, combined with a slowdown in residential construction and new home sales, implies economic growth might not accelerate much from the second quarter's 1.7pc annual pace.

Pointing to a weak start to business spending, shipments of core capital goods - used to calculate equipment and software spending in the gross domestic product report - fell 1.5pc.

The drop, which came despite gains on orders the prior month, is probably related to the fact that not all components in this category are seasonally adjusted. As such core capital

goods shipments tend to decline at the start of the quarter.

Shipments had dropped 0.8pc in June.

"While the decline in the headline reading was not a major surprise, the weak detail of the report casts doubt over the previously improving outlook for business investment," said

Andrew Grantham, an economist at CIBC World Markets in Toronto.

US Treasury debt prices rose on the data, while the dollar extended losses against the yen. Stock index futures were little changed.

   

Reuters

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