Orders to U.S. factories rose in June pointing to growth pickup

Capital Goods

Bookings for capital goods excluding aircraft and military equipment, an indicator of future business investment, increased 0.9% in June. The reading was revised up from the government’s first estimate last week which showed a 0.7% advance.

Shipments of those goods, used in calculating gross domestic product, fell 0.9% in June, unchanged from last week’s estimate.

A report yesterday showed American factories climbed in July as production surged to a nine-year high. The Institute for Supply Management’s manufacturing index jumped to 55.4, the strongest since June 2011 and exceeding the highest projection in a Bloomberg survey of economists, from 50.9 in June. A reading of 50 is the dividing line between expansion and contraction.

Gross domestic product, the value of all goods and services produced, rose at a 1.7% annualized rate in the second quarter after a 1.1% gain in the prior three months that was smaller than previously estimated, Commerce Department figures showed earlier this week. The data showed that corporate spending on equipment climbed at a 4.1% annualized pace.

Housing Gains

Gains in residential real estate are helping sustain orders at factories. Work began on 836,000 houses at an annualized rate in June, the Commerce Department said last month, the least in a year while beating the average of 682,000 since the recession ended June 2009. The drop was led by a plunge in multifamily projects, which are more volatile than single-family homes.

Purchases of new U.S. homes climbed 8.3% to an annualized pace of 497,000 homes in June, achieving the highest level since May 2008.

At the same time, the average for a 30-year fixed-rate mortgage was 4.39% in the week ended Aug. 1, higher than the 3.71 average so far in 2013, according to data from Freddie Mac. The rate reached 3.31% in November, the lowest in records dating to 1972.

D.R. Horton Inc. of Fort Worth, Texas, the largest U.S. homebuilder by volume, is expecting a positive growth trajectory even as higher mortgage rates may weigh on orders.

“We expect that most home buyers who slow their purchase decision while rates are volatile will ultimately still buy a house, since affordability remains strong and interest rates remain at historically low levels,” Chief Financial Officer William Wheat said on a July 25 earnings call. “But clearly demand over the long term is driven more by economic indicators and clearly those trends still tend to be positive in most of our markets.”

Demand for automobiles also is supporting production. Cars and light trucks sold at a 15.6 million annualized rate in July and 15.9 million the prior month, the strongest back-to-back readings since late 2007, according to figures from Ward’s Automotive Group.

Manufacturing, which accounts for about 12% of the economy, may help lift growth in the second half of the year as the effects of federal spending cuts and tax increases fade.


<< Page 2 of 2

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome