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US durable goods orders rebound in October

H.S. Borji
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US durable goods orders rebounded in October following two consecutive monthly declines, although the underlying trend continued to show a broad slowdown in business investment in the second half of the year.

Orders for manufactured goods meant to last three years rose 0.4 percent to $243.8 billion in October, following a revised drop of 0.9 percent the previous month, the Commerce Department reported today in Washington. Economists forecast a decline of 0.6 percent.

October’s gains were driven by a huge spike in defense aircraft and parts, which surged 45.3 percent. This outweighed weaker demand in other areas, such as nondefense capital goods, machinery, computer products and primary metals.

Orders for transportation equipment increased for the third consecutive month, advancing 3.4 percent.

Excluding the volatile transportation category, durable goods orders decreased 0.9 percent.

Excluding defense equipment, new orders declined 0.6 percent.

Nondefense capital goods orders excluding aircraft – a gauge of business spending that excludes defense and aerospace purchases – declined 1.3 percent in October following a similar drop the previous month, official data showed.

Orders for machinery declined 0.1 percent following a 0.4 percent increase in September. Computer and related product orders declined 0.7 percent, while communication equipment fell 1.7 percent.

Durable goods shipments edged up 0.1 percent to $246.5 billion, following a 0.3 percent increase a month earlier.

Unfilled orders for durable goods, up in 18 of the last 19 months, increased 0.4 percent to $1,174 billion, the highest level under the current North American Industry Classification System that was adopted in 1992.

Inventories of durable goods increased 0.5 percent to $406.8 billion, also the highest level since 1992.

Durable goods orders declined in August and September, as demand for transportation fluctuated wildly. The September decline suggested businesses were reluctant to invest in new equipment amid a volatile global economy. Weak recoveries in Europe and Asia are weighing on the global economy, prompting the International Monetary Fund to cut its growth outlook for 2014 and 2015.

A separate gauge of US manufacturing activity also suggests factors activity was declining in the fourth quarter. The manufacturing industry softened in November, hitting its lowest level in ten months as a result of declining export sales.

Markit Group’s flash estimate of US manufacturing activity declined to 54.7 from 55.9. Economists had forecast an increase to 56.4.

Industrial output as a whole declined unexpectedly in October, raising concerns the economy was losing momentum in the fourth quarter. Industrial production declined 0.1 percent, following a downwardly revised gain of 0.8 percent in September, the Board of Governors of the Federal Reserve System reported November 17. The decline was triggered by falls in mining and utilities output, which outweighed gains in the manufacturing industry. Year-on-year, industrial production was up 4 percent.

On Tuesday the Commerce Department said US GDP grew 3.9 percent annually in the third quarter, well above estimates calling for a downward revision. The government had initially reported a 3.5 percent year-on-year increase in national GDP. The third quarter concluded the economy’s strongest six-month period in more than a decade.

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