Durable goods orders rose for the first time in three months, with non-defense capital goods orders excluding aircraft posting their largest gain since February 2018, data from the Commerce Department, released Thursday, indicated.
Shipments gained 1.4% in June after a 0.5% increase in May.
“The gains in durable goods orders and shipments in June set a favorable starting point for Q3 and suggest that activity may be stabilizing,” Berenberg Capital Markets U.S. Economist Roiana Reid wrote in a note. “U.S. manufacturers appear to be coping with weak global demand, supported by the resilience of the domestic economy.”
Weakness in global growth, production and trade hurt manufacturers, she said. “China’s economic slowdown, tariffs and trade-related uncertainties, inventory overhang, the strong dollar, and unique issues [are] affecting the aircraft sector.”
Non-defense capital goods orders excluding aircraft, a proxy for upcoming business spending, which fell in the first quarter for the first time in three years, implies that businesses will increase spending on equipment.
Federal Reserve officials have pointed to soft business investment as one of the factors weighing on the outlook and suggesting the need for a rate cut.
Although orders and shipments rose in June, it probably wasn’t “enough to offset the sharp declines in April that likely resulted in an outright decline in business equipment investment in Q2 GDP,” Reid said.
Manufacturing continues to be weaker than last year, according to Fed surveys. The Federal Reserve Bank of Kansas City’s manufacturing survey, released Thursday, was about flat, as the composite index dipped to negative 1 in July from zero in June.
“Regional factory growth remained basically flat this month, and a number of firms noted increased uncertainty because of trade concerns and weaker domestic demand,” said Chad Wilkerson, vice president and economist at the Bank. “However, nearly 80 percent of manufacturing contacts reported confidence in their local economy.”
Earlier this week, the Richmond Fed manufacturing survey composite index fell to a contractionary negative 12 reading in July, its lowest level since January 2013. In June the index was positive 2.
The negative reading suggested economic weakness, another sign supporting a 25 basis point Fed rate cut next week.
ECB
The European Central Bank said it expects rates to hold or fall through the first half of next year, suggesting the deposit rate could be lowered from negative 0.4% at its September meeting.
The ECB also indicated they could resume bond buying to support the economy, if needed.
This comes as the Federal Reserve is widely expected to drop its fed funds rate target from its current 2.25% to 2.5% range.
Jobless claims
Jobless claims fell to a three-month low of 206,000 in the week ended July 20, from 216,000 the week before.
Economists predicted 217,000 claims in the week.
Continuing claims fell to 1.676 million in the week ended July 13 from 1.689 million the week before.
