Orders for durable goods — which include automobiles, appliances, machines and other major purchases — rose in July, ending a series of declines in June and May, although the month's gains did not meet expectations for a rebound in this product category. Strong growth in transportation equipment was responsible for most of the increase, while other key indicators showed widespread contraction.

According to a report from the U.S. Department of Commerce this week, new orders for durable goods rose $0.6 billion to $193 billion in July. This marked the first month of growth in new orders after a two-month period of decline and represented a 0.3 percent increase over durable goods orders in June, when orders fell 0.1 percent (based on revised figures).

Transportation equipment, orders for which also declined in the previous two months, saw the largest increase in July, rising $6.1 billion to a total of $52.6 billion. This 13.1 percent increase over the prior month, led by a $4 billion surge in non-defense aircraft and parts, was responsible for most of the overall growth in durable goods in July.

Excluding transportation equipment, durable goods orders actually decreased 3.8 percent. Machinery orders, up the previous two months, had the largest decrease in July, falling $4.2 billion to $24.1 billion, a 15 percent drop. Orders for capital goods declined $1.8 billion to $64.1 billion, a 2.8 percent decrease.

"Business spending on equipment and software rose at more than a 20 percent annual rate in the first half of 2010, one of the bright spots in the economic picture; the new data suggest that such spending may not be as strong in the second half of the year," the Washington Post explains.

The Commerce Department found that shipments for durable goods displayed the same imbalanced growth as new orders. Up four of the last five months, shipments increased $4.4 billion to $200.6 billion in July, a 2.2 percent gain. However, transportation equipment again accounted for the bulk of the growth, rising $3.4 billion to $52.7 billion, a 6.9 percent increase. Excluding the transportation category, shipments only rose by 0.6 percent for the month.

"Statistical evidence for July clearly show that the U.S. economy is decelerating in its pace of growth," Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, said in an analysis of the durable goods data. "With the initial return to growth, aided by an inventory swing, there was immediate need for repair and replacement equipment. Now that it seems clear that the recovery is moving at a slow and uneven pace, the need for equipment is less pressing and the impetus for growth switches to one of enhancing productivity to cut costs."

Inventories for durable goods, up for seven consecutive months, continued rising in July, increasing $1.8 billion — or 0.6 percent — to $311.2 billion. Machinery inventories had the largest gain, growing 1.9 percent to reach $51.4 billion.

"Much of the business spending appears to have been playing catch-up, replacing equipment that had grown obsolete or worn out but which firms had delayed replacing during the deep recession in 2009," the Post adds. "As that cycle of replacing equipment ends, equipment and software spending, a component of gross domestic product, could suffer further."

July's lackluster durable goods data went against expectations for the month. Economists surveyed by MarketWatch had forecast a 2.7 percent increase in durable goods orders, while experts cited by Forbes.com anticipated a 2.5 percent boost.

"The figures provided the latest evidence that the rebound in manufacturing, which propelled the early stages of the economic recovery, is unlikely to remain strong enough to offset weakness in consumer spending and waning support from federal stimulus," according to the Wall Street Journal.

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Durable Goods Orders Decrease in June

Durable Goods Orders Fall in May

Resources

...Durable Goods Manufacturers' Shipments, Inventories and Orders: July 2010
U.S. Department of Commerce, Aug. 25, 2010

Durable Goods Order Disappoint in Latest Sign of Economic Weakness
by Neil Irwin
The Washington Post, Aug. 25, 2010

MAPI Analysis on Durable Goods: 'Disappointing' Report and Rough Month
by Daniel J. Meckstroth
Manufacturers Alliance/MAPI, Aug. 25, 2010

Durable-Goods Orders Rise for First Time in Three Months
by Greg Robb
MarketWatch, Aug. 25, 2010

Durable Goods Threaten Q3 GDP
by Carl Gutierrez
Forbes.com, Aug. 25, 2010

Orders and Home Sales Underscore Slowdown
by Sudeep Reddy and Nick Timiraos
The Wall Street Journal, Aug. 26, 2010