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 Non-defense capital goods orders excluding aircraft, a closely
watched proxy for business spending plans, rebounded 1.4 percent
after declining by a downwardly revised 1.2 percent the prior month,
the Commerce Department said.
However, shipments of these so-called core capital goods fell 1.0
percent. Core capital goods shipments are used to calculate
equipment spending in the government's gross domestic product
measurement.
It was the third month of decline in shipments, prompting some
economists to temper their second-quarter growth estimates.
"The weak performance in core capital goods shipments during the
quarter suggests that this segment of the economy is unlikely to
contribute much to economic activity," said Millan Mulraine, deputy
chief economist at TD Securities in New York.
Morgan Stanley trimmed its second-quarter growth estimate by
one-tenth of percentage point to a 3.2 percent annual rate, while
JPMorgan lowered its forecast to 2.6 percent from 2.7 percent.
The government will release its first snapshot of second-quarter GDP
next Wednesday. The economy contracted at a 2.9 percent rate in the
first three months of the year, with business spending on equipment
falling at a 2.8 percent rate.
But the swing back in core capital goods orders last month offered
hope for growth in the third quarter. That trend, if sustained would
be a boost to growth.
In addition, unfilled core capital goods orders increased a solid
1.2 percent after rising 0.5 percent in May.
"The momentum in core orders in the second quarter bodes well for
equipment and software spending in the second half of the year,"
said Michael Gapen, a senior economist at Barclays in New York.
MAY ORDERS REVISED DOWN
Some economists, however, worry that business investment might not
pick up much because of the sharp downward revision to May's core
capital goods orders from the previously reported 0.7 percent
increase.
"The weakness late in the quarter implies a soft trajectory for
capital spending heading into the third quarter," said Michael
Feroli, an economist at JPMorgan in New York.
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"All in all, it's nice to see that capital expenditure has rebounded
from its first-quarter hole, but the latest data do nothing to
indicate that capital spending is about to shift into higher gear."
Other details of the report painted a fairly upbeat picture of
manufacturing, consistent with other data on factory activity.
Orders for long-lasting manufactured goods increased 0.7 percent in
June as demand increased from transportation to machinery and
computers and electronic products.
The increase in orders for these goods, which range from toasters to
aircraft that are meant to last three years or more, followed a 1.0
percent drop in May.
Unfilled orders for durable goods rose 0.8 percent last month after
rising 0.7 percent in May, showing a building up of backlogs that
will keep the nation's factories busy for a while.
Durable goods inventories rose 0.4 percent. That supports views
inventories would be a boost to second-quarter growth. A slow pace
of inventory accumulation was behind the sharp contraction in output
in the first quarter.
"It is further encouragement that the economy will return to growth
in the second quarter and should continue to be strong through the
remainder of 2014," said Tim Quinlan, an economist at Wells Fargo
Securities in Charlotte, North Carolina.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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