US durable goods orders fall, but business spending up

WASHINGTON: New orders for US manufactured goods like cars and planes fell unexpectedly for a second straight month in June, posting the largest drop since August in a sign economic recovery cooled in the second quarter.
However, the Commerce Department report on long-lasting manufactured goods showed cash-flush businesses continued to invest on equipment. That implied underlying demand remained intact with firms exhibiting confidence in the moderate economic recovery.
"The bottom line is that the data show business investment had a very strong second quarter and, although the recovery in manufacturing may be losing a little momentum, it is hardly collapsing," said Paul Ashworth, senior US economist at Capital Economics in Toronto of the Wednesday report.
Durable goods orders dropped 1.0 per cent after falling 0.8 per cent in May, surprising financial markets that had expected a 1.0 per cent increase.
But orders for non-defense capital goods excluding aircraft, a proxy for business spending, unexpectedly rose 0.6 per cent in June after increasing by an upwardly revised 4.6 per cent in May. Markets had expected a flat reading after May's previously reported 3.9 per cent increase.
Stocks on Wall Street fell as investors focused on the overall decline in orders and a full-year earnings forecast from Boeing Co that was below market consensus.
Prices for safe-haven US government bonds were little changed ahead of an auction of five-year notes. The US dollar fell against the yen.
Data ranging from consumer spending to manufacturing have suggested the recovery from the longest and deepest recession since the 1930s took a step back in the past few months.
The government is expected to report on Friday that growth slowed to a 2.5 per cent annual rate in the April-June period from a 2.7 per cent pace in the first three months of the year, according to a Reuters survey.
Some analysts said there was a chance growth could beat expectations given signs of strong business investment. With profits booming, companies have stepped up spending on equipment and software after aggressively cutting back during the recession.
"There has been a loss of momentum in the past two months, it's yet to be seen how much of the upward momentum from earlier this year has been reversed," said Jim O'Sullivan, chief economist at MF Global in New York.-Reuters