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Buyers snap up durable goods

July orders rise 1.3%, defying recession fears. But exports may slow.

August 28, 2008|Tom Petruno | Times Staff Writer

What happened to the recession?

A government report Wednesday on July orders for big-ticket manufactured goods showed surprising strength -- defying the gloom on the consumer side of the economy.

The dollar value of durable-goods orders rose 1.3% in July from June, compared with the flat reading analysts had expected. What's more, the figure for June was revised to a 1.3% gain as well, from the initially reported rise of 0.8%.

The numbers "hardly look recessionary or pre-recessionary," said Robert Brusca, head of Fact and Opinion Economics in New York.

One key barometer of business spending -- the value of new orders for machinery and other capital goods, excluding aircraft -- jumped 2.6% in July, double the June advance.

"This suggests the credit crunch is not having a profoundly adverse impact on capital spending that most economists, myself included, assumed it would," said David Resler, an economist at Nomura Securities.

The report, which sent the Dow Jones industrial average up 89.64 points, or 0.8%, despite a rise in oil prices, is good news for the Los Angeles-area economy, which still boasts a huge manufacturing sector.

A supporting factor for durable-goods sales: Congress' economic-stimulus package this year. The legislation gave "companies of all sizes a 50% bonus depreciation on capital equipment purchased or put in place in 2008," notes Tony Crescenzi, bond market strategist at Miller, Tabak & Co. in New York.

All in all, it looks like the continuation of a tale of two U.S. economies: Consumers are struggling amid rising layoffs and the surge in energy and food prices. But the manufacturing sector -- which accounts for about 12% of U.S. private-sector employment -- has been relatively resilient, helped in large part by strong export demand.

Still, other recent data on manufacturing haven't been as upbeat as the durable-goods report. The Institute for Supply Management's index of manufacturing activity showed a slight decline last month.

And a looming question is whether the U.S. export wave could be cresting, given decelerating economies in Europe, Japan and elsewhere abroad, and the rebounding dollar.

"The most likely reason for the relative strength of manufacturing is strong export demand, and the slowing in the rate of growth of the rest of the world could start to bite soon," Goldman, Sachs & Co. economists warned in a note to clients Wednesday.

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tom.petruno@latimes.com

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