U.S. Orders for Long-Lasting Goods Gained in June

Orders for long-lasting U.S. factory goods rose in June as the economy continued its climb back from disruptions related to the coronavirus pandemic, though a summer surge in virus infections could dampen future gains.

New orders for durable goods — products designed to last at least three years — increased a seasonally adjusted 7.3% in June from the previous month, the second consecutive monthly gain, the Commerce Department said Monday. Economists surveyed by The Wall Street Journal had expected orders to rise 5.4%.

The auto sector was a big driver. New orders for motor vehicles and parts jumped 85.7% from the prior month.

Underlying figures were more modest. New orders for nondefense capital goods excluding aircraft — a closely watched proxy for business investment — rose 3.3%.

Even with two consecutive monthly gains, demand remains well below pre-pandemic levels. Overall new orders last month were 15% lower than in February and core capital orders were down 3%.

“The manufacturing sector remains exposed to weak demand, which will impact investment and hiring decisions going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

Manufacturers were already caught up in trade disputes between the U.S. and China. The coronavirus pandemic was another blow, further disrupting supply chains while forcing some plants to suspend production and implement new safety measures.

It isn’t clear how robust growth will be in coming months. Factories haven’t been as exposed to social-distancing mandates that, for example, forced restaurants and salons to temporarily close and later limited the number of customers.

Separate data out last week suggested that factory activity continued to grow into July. A survey of purchasing managers from data firm IHS Markit last week found that overall U.S. manufacturing output expanded for the first time since February as new orders ticked up.

Even so, heavy layoffs across the economy, a potential expiration of federal jobless benefits, rising virus cases and renewed consumer caution are likely to leave demand muted and overall output below prepandemic levels for some time.

“With the recovery in production largely a response to the rebound in consumption, by far the most important factor is how much the latter slows in response to the ongoing wave of new infections,” said Michael Pearce, senior U.S. economist at Capital Economics.
Source: Dow Jones