Orders for durable goods rebounded sharply in July, representing their biggest gain in two years. Demand for motor vehicles alone rose 0.9 percent, on the back of the government’s CARS program.

Manufacturers’ orders for durable goods rose 4.9 percent last month to a seasonally adjusted $168.4 billion, the United States Department of Commerce reports today. That was the third increase in the last four months and the largest since the 5.4 percent bump in July 2007.

“Most analysts had expected a 3.2 percent increase in July following a 1.3 percent drop in June amid persistent reports indicating that the world’s largest economy was slowly emerging from recession that struck in December 2007,” Agence France-Presse reports.

Excluding defense goods, orders for all durable goods — products likely to last at least three years, such as cars, planes and appliances — rose by 4.3 percent in July, representing a two-year high following a 0.7 percent rise in June. Excluding the transportation sector, July orders climbed 0.8 percent, a third consecutive gain.

Motor-vehicle orders increased 0.9 percent. The federal government’s $3 billion “cash-for-clunkers” plan has revived short term sales; of the 10 most popular car models purchased with trade-in rebates, 54 percent were U.S.-built. J.D. Power & Associates expects that new-vehicle retail sales in August will probably top 1 million for the first time in the past year.

As a result, domestic auto manufacturers may soon be flooded with orders to restock depleted inventories. That may also give related industries and suppliers a jolt, contributing to a factory rebound.

“Reduced inventories will likely hold back some of this momentum, but the automakers are moving quickly to ramp up production and rebuild stock,” Gary Dilts, senior vice president of global automotive operations at J.D. Power and Associates, said in a statement.

Last week, General Motors Corp. said it would call back 1,350 union workers as it boosts second-half production to meet surging demand for fuel-efficient vehicles.

Inventory cutbacks in the first half of the year helped lay out the groundwork for growth. “Stockpiles dropped at a record $141.1 billion annual pace in the second quarter after a $113.9 billion decline the first three months of the year,” Bloomberg News reports. Down seven consecutive months, inventories of manufactured durable goods decreased 0.8 percent to $314.1 billion in July.

“Disappointingly, new orders for non-defense capital goods, excluding aircraft, a proxy for business equipment spending, slipped a bit after two strong months and remains more than 20 percent below year-ago levels,” Cliff Waldman, an economist for the Manufacturers Alliance/MAPI, said in an analysis of today’s government report.

New orders for non-defense capital goods increased 8.6 percent to $57.5 billion in July. Bloomberg News notes that “bookings for non-defense capital goods excluding aircraft [...] fell 0.3 percent after a revised 3.6 percent gain the prior month that was a percentage point larger than previously estimated.”

Shipments of manufactured durable goods in July, up two consecutive months, increased 2 percent to $173.1 billion last month. Unfilled manufacturers’ orders for durables, which signal future demand, dropped 0.1 percent for the 10th consecutive decline.

The Commerce Department’s durable-goods report follows last week’s regional surveys from Pennsylvania and New York that show manufacturers are gaining more confidence.

The Federal Reserve Bank of Philadelphia’s general economic index climbed from -7.5 in July to 4.2 in August, the highest reading since November 2007. Manufacturing in the Philadelphia region this month expanded for the first time in almost a year. In New York, the general business conditions index rose 13 points to reach 12.1, its highest level since November of 2007. “For the first time in considerably more than a year,” the Empire State Manufacturing Survey indicates that “conditions for New York manufacturers have improved.”

Another government report today showed purchases of new homes in the U.S. jumped 9.6 percent in July, the most since February 2005, to a 433,000 annual pace. The number of houses on the market dropped to the lowest level in 16 years. And, for the first time in five years, existing-home sales have increased for four months in a row, according to the National Association of Realtors last week.

“U.S. and global activity has stabilized and financial conditions have improved modestly,” according to Waldman. “The mixed industry data for July, with primary and fabricated metals demand showing solidly positive activity but machinery demand suffering a sizable decline, indicates that factory activity will, for a time, likely return to the mixed situation that was indicative of the earlier months of this long recession.”

Resources

Manufacturers’ Shipments, Inventories and Orders: July 2009
U.S. Department of Commerce, Aug. 26, 2009

U.S. Durable Goods Orders Increase 4.9% on Aircraft
by Courtney Schlisserman
Bloomberg News, Aug. 26, 2009

U.S. Durable Goods Orders Post Steep Jump
Agence France-Presse (via IndustryWeek), Aug. 26, 2009

Strong Consumer Response to CARS Program Expected to Lift August New-Vehicle Retail Sales to Highest Level in the Past Year
J.D. Power and Associates, Aug. 20, 2009

GM to Boost Production
Agence France-Presse, Aug. 18, 2009

Durable Goods Report Confirms ‘Slow, if Somewhat Uncertain, Recovery
by Cliff Waldman
Manufacturers Alliance/MAPI, Aug. 26, 2009

August 2009 Business Outlook Survey
Federal Reserve Bank of Philadelphia, Aug. 20, 2009

August 2009 Empire State Manufacturing Survey
Federal Reserve Bank of New York, Aug. 17, 2009

New Residential Sales in July 2009
U.S. Census Bureau, Aug. 26, 2009

Strong Gain in Existing-Home Sales Maintains Uptrend
National Association of Realtors, Aug. 21, 2009

New-Home Sales Post Another Strong Gain (subscription required)
by Tom Barkley
The Wall Street Journal, Aug. 26, 2009