Durable goods demand increases

That points to 2nd-half rebound.

Bloomberg NewsMay 25, 2013 

— Orders for U.S. durable goods increased more than forecast in April, indicating the world’s largest economy will get a lift in the second half of the year as business investment strengthens.

Bookings for equipment meant to last at least three years increased 3.3 percent last month after dropping 5.9 percent in March, the Commerce Department said Friday in Washington. The median forecast from 78 economists surveyed by Bloomberg projected a 1.5 percent increase.

Gains in residential construction, growing demand for autos and the need to update equipment will probably ripple throughout manufacturing, helping the economy recover from a slowdown this quarter. Government cutbacks and cooling exports are restraining demand, which means the rebound will be slow to develop.

“This report is consistent with the economy continuing to recover, but just at a moderate pace,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla., and the second-best forecaster of capital goods orders over the past two years, according to data compiled by Bloomberg. “We’re not getting much demand from the rest of the world, but we are getting growth domestically.”

The gain in bookings last month was boosted by a rebound in demand for commercial aircraft, which is often volatile. Aircraft orders climbed 18.1 percent in April after slumping 43 percent the prior month. Boeing, the Chicago-based aerospace company, said it received orders for 51 planes last month, up from 29 in March.

Excluding the transportation equipment component, orders climbed 1.3 percent, the first gain in three months.

The figures used to calculate gross domestic product this quarter were less positive, indicating business investment is cooling. Shipments of non-defense capital goods excluding aircraft dropped 1.5 percent after increasing 0.5 percent.

Gains in inventories may help offset some of the softness in capital spending this quarter, limiting the damage to growth. Stockpiles climbed 0.4 percent in April after falling 0.1 percent the prior month, according to the report.

Economists at Morgan Stanley called it a “mixed” report and lowered their tracking estimate of economic growth this quarter to a 1.7 percent annualize rate from 1.9 percent on the softening in business investment. At the same time, the figures were “stronger on a forward-looking basis, adding to expectations for a second-half pickup,” economist Ted Wieseman wrote in a research note.

A pickup in manufacturing would stem a recent slowdown in inventory building that has curbed activity. The Institute for Supply Management’s manufacturing index declined in March and April, falling to just above the 50 level that represents the dividing line between contraction and expansion.

The U.S. economy probably cooled in the second quarter, according to economists surveyed by Bloomberg. Growth is projected at a 1.6 percent annualized rate, down from a 2.5 percent pace in the first three months of the year. GDP is estimated to grow at an average 2.4 percent pace in the second half of the year.

“We see indicators which point towards strengthening economies,” Louis Chenevert, chief executive officer of United Technologies, said during an industry conference on May 21. Orders in the first quarter signal a rebound in the second half of the year, he said.

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