Durable Goods Post Biggest Gain in 2 Years

By TOM BARKLEY WASHINGTON -- Demand for long-lasting goods rebounded sharply in July, staging their biggest gain in two years on the back of big orders for planes and capital goods. Manufacturers' orders for durable goods jumped 4.9% last month to a seasonally adjusted $168.43 billion, the Commerce Department said Wednesday. That was the largest increase since 5.4% in July 2007. Economists surveyed by Dow Jones Newswires had projected a 3% gain in July orders. Overall durable goods orders for June were revised up, estimated to have declined 1.3% instead of the 2.2% drop previously reported. Transportation-related durables climbed 18.4% in July, the biggest gain since September 2006. Orders for commercial planes soared 107.2%, following a 30% drop the previous month. Motor vehicle orders increased 0.9%, with General Motors joining Chrysler to emerge out of bankruptcy and both firms getting a boost from the "Cash for Clunkers" program. Excluding the transportation sector, orders for all other durables climbed 0.8%. Demand ex-transportation had gained 2.5% in June. Orders for all durables except defense goods increased by 4.3% in July, also a two-year high, after rising 0.7% in June. Orders for non-defense capital goods excluding aircraft -- a key barometer for capital spending by U.S. businesses -- fell 0.3%. That follows a 3.6% gain in June. Overall capital goods orders rose 9.5% in July. Nondefense capital goods -- items meant to last 10 years or longer -- gained by 8.6%. Defense-related capital goods orders went up by 14.8%. Durable goods are products designed to last at least three years, such as cars, planes and computers. While the monthly figures tend to be volatile, such big ticket items provide an indication about the health of U.S. manufacturing and domestic demand. Data out earlier this month showed a 0.5% pickup in U.S. industrial production in July, for the first monthly gain since October 2008 and only the second since the recession began in December 2007. On Thursday, second-quarter gross domestic product is expected to be revised down to a 1.5% contraction, instead of the 1% decline in the preliminary estimate. That's due in part to expectations that businesses liquidated more inventory than initially thought. Still, most economists believe that the recession is at or near its end. Wednesday's report showed that manufacturers are still reducing inventory, however, with inventories of durable goods registering their seventh straight month of declines at 0.8% in July. Unfilled manufacturers' orders for durables, a sign of future demand, decreased 0.1% for the tenth consecutive decline. Write to Tom Barkley at tom.barkley@dowjones.com