Core durable goods orders indicate strength in business investment

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By Hao Li | June 25, 2010 3:39 AM EST

Data in the Census Bureau's durable goods orders report this morning point to continued strength in business spending.

New orders for manufactured durable goods in May fell by by $2.2 billion, or 1.1 percent, to $192.0 billion. Excluding transportation, new orders increased 0.9 percent and excluding defense, it dropped 1.1 percent.

 

Economists surveyed by Bloomberg expected overall orders to decline 1.4 percent and orders excluding transportation to gain 1 percent.

 

Orders for capital goods, excluding both defense and aircraft – sectors where the orders tend to be in bulk and thus volatile – increased by 2.1 percent to $59.6 billion.

 

New orders for machinery – which includes goods like farming and construction equipment – increased 5.6 percent while orders for computers and electronic products decreased 2.6 percent.

 

Paul Ashworth, senior U.S. economist at Capital Economics, said in a research note that one should not pay too much attention to the headline number which dropped 1.1 percent due to the “notoriously volatile commercial aircraft component.”

 

Ashworth is encouraged by the 0.9 percent increase excluding transportation after the figure decreased in April, which suggests that “Europe's woes and recent financial market turbulence haven't dampened the new-found enthusiasm firms have for investing in new capital equipment.”

 

Prior to April's 1.0 percent drop, orders excluding transportation had increased 2.8 percent in March and 0.9 percent in February.

 

However, Ashworth cautioned that business investment alone will not be sufficient to support a strong overall recovery; a greater pickup in consumer spending is needed to sustain the economic growth.

 

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