Orders to U.S. factories for big-ticket manufactured goods posted a sizable gain in June, but the advance was fueled by higher demand for commercial aircraft. Outside of this volatile category, a key category that represents business investment rose by a far more modest amount.
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. However, the jump was driven by aircraft orders booked by Boeing at the Paris air show.
A category viewed as a proxy for business-investment plans rose a slower 0.9 percent. While this was the strongest showing since March, it followed two months of declines. Through the first six months of this year, demand in the investment category is running 3.4 percent below the same period a year ago.
This category has been weak for months and has dragged activity in the overall manufacturing sector. Total orders for durable goods – items expected to last at least three years – are running 2 percent lower through the first half of this year compared to the first six months of 2014.
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.”
Some economists believe a modest rebound in manufacturing will emerge as strong employment gains help lift consumer spending, which accounts for 70 percent of economic activity. But other analysts are concerned that problems weighing on the global economy, such as the Greek debt crisis and a big drop in the Chinese stock market, will keep a lid on export sales.
“There is enough growth in the U.S. economy to suggest that manufacturing output gains will be positive for the balance of 2015 and into 2016, but factory sector performance will likely be sluggish and volatile,” said Cliff Waldman, director of economic studies for the MAPI Foundation, a manufacturing research group.
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.