Companies pulled back on orders for big-ticket items in July

Overall orders for durable goods—which include factory equipment, computers and washing machines—increased in nine of the past 12 months through July. (Photo; AFP)
Overall orders for durable goods—which include factory equipment, computers and washing machines—increased in nine of the past 12 months through July. (Photo; AFP)

Summary

Commerce Department’s report on durable goods adds to signs manufacturing demand is cooling

Businesses pulled back on orders for long-lasting goods in July, reflecting a cooling in demand amid other signs of a slowing U.S. economy.

New orders for durable goods—products meant to last at least three years—were unchanged at a seasonally adjusted $273.5 billion in July compared with the prior month, the Commerce Department said Wednesday. Excluding defense, new orders were up 1.2%.

Overall orders for durable goods—which include factory equipment, computers and washing machines—increased in nine of the past 12 months through July.

The figures reflect continued demand from businesses and consumers—and rising prices. Orders figures aren’t adjusted for inflation, which ran near a four-decade high last month.

Surveys of purchasing managers by S&P Global indicated manufacturing activity contracted in August for the second straight month, with its manufacturing index falling to a 26-month low.

A backlog in unfilled orders is expected to offset any cooling in demand, according to Shannon Seery, an economist at Wells Fargo. Unfilled orders for long-lasting goods were about 17.8% higher than in February 2020 before the pandemic hit the U.S. economy.

Still, demand from both consumers and businesses is expected to slow later in the year under the weight of high inflation and rising interest rates, Ms. Seery said.

“The overall environment is shifting, given the increased concern of a recession and less optimism out there from businesses," Ms. Seery said. She added that a pullback in spending will outweigh any improvements in supply-chain disruptions, which are expected.

Economists surveyed by The Wall Street Journal expect the Commerce Department to report on Friday that U.S. household spending grew more slowly in July than in June.

A closely watched proxy for business investment—new orders for nondefense capital goods excluding aircraft—rose 0.4% to $74.5 billion in July compared with the previous month, the Commerce Department said Wednesday.

In the first half of the year leading up to July, so-called core capital goods orders were up 9.7% compared with the same time a year ago. The business investment proxy is seen as an indicator of the economy’s future direction.

Ms. Seery said that business investment likely won’t decline as much as in previous economic slowdowns because of investment in technology that allows existing staff to increase productivity.

“You’re going to see a slowdown that’s typical during financial tightening periods, but there are some unique offsetting factors like the backlog in orders and this underlying trend of businesses discovering and investing in labor-saving technology," she said.

 

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