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Economists cut GDP Estimates after Mixed US Durable Goods Report

H.S. Borji
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Economists cut GDP Estimates after Mixed US Durable Goods Report

US durable goods rebounded in June, but weak shipments of core capital goods prompted economists to quickly downgrade their estimates for second quarter growth.

Orders for manufactured goods meant to last three years or more increased 0.7 percent in June, following a decline of 1 percent the previous month, the Commerce Department reported today in Washington. A median estimate of economists called for a gain of 0.5 percent.

Excluding transportation equipment, durable goods orders advanced 0.8 percent, following a 0.1 percent decline in May.

Excluding defense equipment, orders increased 0.7 percent, official data showed.

Non-defense capital goods excluding aircraft – a gauge of business spending – rebounded 1.4 percent in June after declining 1.2 percent the previous month. Growth in this category suggests business investment was rebounding at the end of the second quarter, which bodes well for economic growth in the third quarter and beyond.

Shipments of manufactured durables, up four of the last five months, increased 0.1 percent, driven by a 0.7 percent rise in transportation equipment.

Unfilled orders for US durables, up 14 of the last 15 months, accelerated 0.8 percent to $1,096.8 billion, the highest level since the series was first published on a NAICS basis.

Durable goods inventories increased 0.4 percent in June. Weak inventory growth in the first quarter was partly responsible for the sharp contraction in total output.

Shipments of non-military capital goods excluding aircraft – a component used by government economists in calculating gross domestic product – declined 1 percent in June. Core capital goods shipments declined 0.1 percent the previous month.

The June figures, while showing signs of improvement, suggest the US economy isn’t rebounding as quickly as previously anticipated. Economists at the Bank of America and Goldman Sachs were quick to slash their second quarter GDP estimates following the release.

Bank of America cut its growth forecast from 3.5 percent to 3.3 percent.

Goldman Sachs lowered its forecast from 3.1 percent to 3 percent.

TD Bank highlighted “downside risks” to its estimate of 3 percent.

The Commerce Department will release its first estimate of second quarter GDP growth on July 30. A median estimate of economists is calling for an annualized gain of 2.9 percent between April and June.

The US economy suffered a devastating first quarter, as GDP contracted at an annual rate of 2.9 percent. That was the steepest contraction in output since the first quarter of 2009. Latest data suggest the US economy was unable to fully regain momentum in the second quarter, a sign economic growth was mostly subdued in the first half of the year.

The Federal Reserve at its June policy meetings revised its outlook on growth for 2014. Central bankers now believe the US economy is on pace to accelerate between 2.1 percent and 2.3 percent this year, down from the previous estimate of nearly 3 percent. However, Fed policymakers have been confident the economy would expand at a faster rate in the second half of the year.

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