The Economy

Durable Goods Orders Climb 1.7% in August

The better-than-expected increase, combined with another gain in core capital goods orders, indicate manufacturing's recovery is picking up steam.
Matthew HellerSeptember 27, 2017

The volatile aircraft sector boosted U.S. durable goods orders in August while another gain in business investment indicated the recovery in manufacturing is picking up steam.

The Commerce Department on Wednesday said orders for long-lasting goods manufactured by U.S. companies rose 1.7% last month following a 6.8% plunge in July. Economists had forecast a 1% gain in August.

Both of the past two months have reflected the gyrations of the aircraft sector. Orders for commercial aircraft surged 44.8% in August after having fallen 71.1% in July.

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For August, orders excluding transportation were up 0.2% after a stronger 0.8% rise in July. It was the third straight monthly gain for that metric.

In addition, core capital goods orders, which economists watch as a proxy for business spending plans, posted a 0.9% gain in August after a 1.1% increase the previous month. That key metric hasn’t declined since December.

“The manufacturing sector appears to be a bright spot in the U.S. economy,” John Ryding, chief economist at RDQ Economics in New York, told Reuters.

As USA Today reports, “Manufacturing has been improving since the middle of 2016, following a two-year slump caused by cutbacks in the energy industry and a strong dollar that made U.S. goods costlier overseas. Prospects are brighter now with the dollar weakening in value this year, which makes U.S. exports more competitive on overseas markets, and a rebound in energy drilling.”

Manufacturing accounts for about 12% of the economy and business spending on equipment added almost half-a-percentage point to GDP in the third quarter, the most in nearly two years. “The signs of an acceleration in business spending on equipment bolstered prospects of a December interest rate hike by the Federal Reserve,” according to Reuters.

Orders for machinery, primary metals, computers and electronic products as well as transportation equipment increased last month. Shipments of core capital goods rose 0.7% after advancing 1.1% in July.

“Business equipment investment is on track for a big rise in the third quarter,” said Michael Pearce, a U.S. economist at Capital Economics in New York.