Manufacturing side of economy gets surprise lift

What happened to the recession?

The government’s report today 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.

That's 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 earlier 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 a continuation of the 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 today.

Comments

[hippynate]

a tale of two economies, still no clarity which direction we're headed. Clarity is the goal here, the murkiness continues, as I'm sure some data will appear tomorrow to pull the pendulum in the other direction...

[Chad Steele]

Earth has the internet yet so many are so sadly completely out of touch with reality.... really sad.

Durable goods sales are up..... WOW! great, now we're all saved....

Durable goods sales is such a microscopic fraction of the real economy that even drawing attention to the fact shows a hidden agenda or massive stupidity.

[Tom Petruno]

Chad: I find your comment interesting, given that so many people accuse the mainstream media of reporting only bad news on the economy these days. ANY bit of economic data is just that -- a small piece of a big picture. Are we supposed to ignore the bits that are encouraging and just assume they're irrelevant? How can you tell what's irrelevant and what isn't?

Tom Petruno

[tedson]

Watch IOUSA Tom. How do you think we should get out of this 60 trillion dollar shortfall?