Durable Goods Orders Rise Unexpectedly in June

Orders to factories for big-ticket manufactured goods such as cars, appliances and machinery rose at the fastest pace in four months in June. While the increase was much stronger than had been expected, much of the strength was related to heavy defense spending.

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The Commerce Department reported Friday that orders for durable goods increased 0.8 percent last month, far better than the 0.4 percent decline that economists had been expecting. However, excluding demand for defense equipment, total orders would have been up a much more modest 0.1 percent.

Analysts said that the June performance was being propped up by sizable military spending for equipment, reflecting the ongoing wars in Iraq and Afghanistan, and this was offsetting widespread weakness in the rest of the economy.

"With orders excluding defense falling at a 4 percent annualized rate in the second quarter, it is pretty clear manufacturing is hardly thriving," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Still, with the help of the demand in defense, the overall increase of 0.8 percent was the best showing since a 1.1 percent rise in February. It reflected strength in heavy machinery, primary metals such as steel and fabricated metal products. The government does not supply a break out of the impact military spending played in these particular sectors.

Wall Street headed to a higher opening Friday after the surprisingly strong jump in durable goods orders. The data might persuade investors to move back into stocks after a big sell-off on Thursday. (Debate: A real comeback or weak dollar flutter? See video)

Orders for motor vehicles and parts had a slight rebound in June, rising by 1.8 percent, the best showing in nearly a year. But the increase was only a fraction of the big declines in previous months and was not seen as signaling any kind of sustained rebound from U.S. automakers. Ford, General Motors and Chrysler are being battered by soaring energy prices that have caused buyers to turn away from formerly hot sellers such as trucks and sport utility vehicles.

Overall, demand for transportation goods fell by 2.6 percent as the slight increase in auto demand was offset by a big 25.1 percent plunge in orders for commercial aircraft. Demand for military aircraft was also down, falling by 8.6 percent.

Excluding the volatile transportation sector, orders for durable goods -- items expected to last at least three years -- shot up by 2 percent, the best showing since last December and much better than the 0.2 percent decline that had been expected.

The manufacturing sector has been hurt by the overall slowdown in the economy with industries related to housing and autos particularly hard hit. This has been offset to some extent by continued strong demand for U.S. exports, which have been helped this year by a falling U.S. dollar against many major currencies. A weaker dollar makes U.S. products cheaper on overseas markets.

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