AP News

Ahead of the Bell: US durable goods

WASHINGTON (AP) — Orders for long-lasting U.S. manufactured goods likely jumped last month, though mostly because of a surge in demand for aircraft, which can be volatile. Outside of aircraft and other transportation goods, orders probably fell, a sign that companies are worried that the economy may slow.

Analysts forecast that overall orders for durable goods rose 1.5 percent in July, according to a survey by FactSet. That's better than June's 1.3 percent gain. Durable goods are items meant to last at least three years.

Orders amounted to $220.7 billion in June, 56 percent above the recession low hit in March 2009. Orders are still 9.4 percent below their peak in December 2007, the month the recession began.

Economists expect a jump in aircraft orders in July. Boeing, one of the biggest global aircraft manufacturers, received 260 orders last month, according to economists at IHS Global Insight, up from 21 in June.

Most economists will pay closer attention to orders for so-called core capital goods — computers, machinery and other goods that signal business investment plans. In June, those orders fell 1.7 percent. It was the third decline in four months.

Companies are less likely to place orders for large capital goods if they're worried that the economy is slowing. Europe's financial crisis has pushed that region to the brink of recession, threatening exports of U.S. goods. Economies in China, India and Brazil are also growing more slowly.

The U.S. economy is also at risk of going off a "fiscal cliff" at the end of the year. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.

This week, the Congressional Budget Office warned that if the fiscal crisis remained unresolved all next year, it would probably tip the U.S. economy into a recession. Unemployment would rise to around 9 percent by late next year as a result of the spending cuts and tax increases, the CBO said. Unemployment is now 8.3 percent.

Some economists worry that companies may be postponing spending until the budget crisis is resolved.

Manufacturing, a key source of growth earlier in the recovery, has already shown signs of weakness. Factory activity shrank for the second straight month in July, according to a survey by the Institute for Supply Management, a trade group.

A separate report last week by the Federal Reserve painted a more positive picture: It said factory output rose last month, largely because of a jump in auto production. That likely occurred because many car makers skipped their traditional summer shutdowns. Economists worry that those gains in auto production will reverse in August.

The economy has shown modest improvement in recent weeks, but analysts don't expect growth to accelerate much. Growth may improve to an annual rate just below 2 percent in the July-September quarter, economists forecast. That's not much better than the 1.5 percent annual pace in the April-June period.

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