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Manufacturers see rebound in orders for durable goods

July 27, 2015

Orders to U.S. factories for big-ticket manufactured goods posted a sizable gain in June, while business investment rebounded after two months of declines.

Orders for durable goods jumped 3.4 percent in June from May, when orders had fallen 2.1 percent, the Commerce Department reported Monday. The gain was the best result since March and largely reflected a surge in demand for commercial aircraft

A category viewed as a proxy for business investment plans jumped 0.9 percent, also the best showing since March. This category had declined in April and May and had been weak for a number of months. The result may suggest growing confidence among manufacturers as consumers boost their spending.

U.S. manufacturers have struggled this year from the effects of a strong dollar and a plunge in energy prices. The higher value of the dollar against foreign currencies makes U.S. goods more expensive and less competitive in major export markets, while the lower oil prices have led energy companies to scale back investment plans.

Jennifer Lee, senior economist at BMO Capital Markets, described the June results as a "glimmer of hope" that may point to "stronger business investment as the second half begins."

The overall economy stalled in the January-March quarter, with the gross domestic product shrinking at an annual rate of 0.2 percent. Analysts blamed that weakness on a number of temporary factors, including a harsh winter. They expect growth to rebound to around 2.5 percent in the April-June quarter. The government will release its first estimate of GDP growth in the spring on Thursday.

For June, demand for aircraft shot up 66.1 percent, recovering from a 31.6-percent plunge in May. Overall demand for transportation goods increased 8.9 percent. Excluding this often volatile category, orders were up 0.8 percent in June, the best showing outside of transportation in 10 months.

The 0.9-percent gain for non-defense capital goods orders excluding aircraft, the category used as a proxy for investment, followed a decline of 0.4 percent in May.

Orders for machinery were up 1.4 percent, while demand for computers and related products shot up 9.1 percent.

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