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Surprising surge in durable goods orders

Orders to U.S. factories for big-ticket manufactured goods shot up in June at the fastest pace in three months, powered by a rebound in demand for commercial aircraft.
/ Source: The Associated Press

Orders to U.S. factories for big-ticket manufactured goods shot up in June at the fastest pace in three months, powered by a rebound in demand for commercial aircraft.

The Commerce Department reported that new orders for durable goods rose 3.1 percent last month, much better than the 1.7 percent gain that Wall Street had been expecting. The rise followed a tiny 0.3 percent May gain and a 4.7 percent drop in orders in April.

Much of the strength came from an 8.8 percent surge in demand for commercial aircraft, which followed two months of big declines in this category.

The 3.1 percent June advance in durable goods orders was the best showing since a 6 percent surge in March.

The strength in both months was led by gains in aircraft orders. Last month, Boeing Co., America’s biggest plane maker, booked orders for 135 aircraft, up from 33 in May.

Analysts believe that output in the manufacturing sector will continue to rise in coming months but at a slower pace, reflecting an economy that is slowing under the impact of surging energy prices, rising interest rates and a cooling housing market.

A report due Friday on economic growth is expected to show the economy expanded at an annual rate of around 3 percent in the April-June quarter, far below the sizzling 5.6 percent rate of growth in the first three months of the year.

Federal Reserve Chairman Ben Bernanke told Congress last week that the Fed believed the slowing economy would serve to moderate inflation pressures — comments that investors took as a strong signal that the Fed’s two-year campaign to boost interest rates was drawing to a close.

For June, orders for durable goods, items expected to last at least three years, totaled $216.3 billion, an increase of $6.52 billion from the May level.

Orders for transportation products accounted for $5.01 billion of the increase last month, a gain of 8.6 percent following a drop of 2.8 percent in May. The strength was led by the 8.8 percent rise in orders for commercial aircraft which followed declines of 19.2 percent in May and 29.7 percent in April.

Demand for military aircraft also rose in June, posting a 12.9 percent increase after a 22.9 percent advance in May.

Orders for autos and auto parts posted a tiny 0.2 percent increase as American automakers continue to struggle with lagging sales in the face of soaring gasoline prices which have cut demand for previously popular models such as sport utility vehicles.

Excluding transportation, orders were up a solid 1 percent in June with strength being shown in demand for computers, communication equipment and primary metals such as steel.