- The Washington Times - Wednesday, July 29, 2009

Orders for long-lasting goods suffered a surprisingly steep decline in June, but after removing the volatile auto and aircraft sectors, bookings increased a strong 1.1 percent last month.

Separately, in its latest Beige Book assessment of the economy, the Federal Reserve reported Wednesday that economic activity continued to be weak going into the summer, although the pace of decline has moderated and activity has begun to stabilize at a low level. Labor markets in all Fed districts remain slack, the Fed said, as employment continues to decline.

New orders for manufactured goods fell 2.5 percent in June, the Commerce Department reported Wednesday. The decline was largely due to a big drop in orders for nondefense aircraft, which plunged 38.5 percent last month after soaring 60.4 percent in May. Orders for motor vehicles and parts were also down last month, falling 1 percent in June after plunging 8.7 percent in May.

Excluding the transportation sectors, new orders for durable goods climbed 1.1 percent in June following a 0.8 percent increase in May.

“Even taking into account the dip in June, durable goods orders are firmly in positive territory at a three-month annual rate, which suggests a welcome momentum shift,” said Tim Quinlan, an economic analyst at Wells Fargo Securities.

Durable goods orders, excluding transportation, “advanced for the second consecutive month in June, corroborating a wide range of other recent signals that the economy is moving to a recovery mode,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

Orders for nondefense capital goods (excluding aircraft) are a widely watched barometer for business investment. Those orders increased 1.4 percent in June after rising 4.3 percent in May.

“Key capital equipment industries are finally reporting some stabilization on the order boards after many months of sharp declines,” said Mr. Bethune.

If stabilization in capital equipment industries is occurring, it is doing so at a very low level. Despite two consecutive monthly increases, June orders for nondefense capital goods were marginally above February levels and 23 percent below June 2008 levels.

Durable goods, such as autos, refrigerators and computers, are expected to last at least three years. Nondurable goods, such as food, gasoline and clothing, are much less long-lasting.

Economists regard orders for durable goods to be a key indicator of future activity in the manufacturing industry. Since the longest postwar recession began in December 2007, monthly manufacturing output had plunged 18 percent by June, the Federal Reserve reported earlier this month.

The Fed report on industrial production noted that the nation’s manufacturers were operating below 65 percent of capacity in June, indicating that business investment in that sector will likely be lackluster for some time to come, analysts say.

According to the Fed’s Beige Book report, many of the Fed’s 12 regional districts said manufacturing activity remained depressed. The Fed said it expects a modest and uneven recovery in manufacturing output would begin during the next six to 12 months.

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