Bloomberg News

Durable Goods Orders in U.S. Probably Rose for a Second Month

July 27, 2011

July 27 (Bloomberg) -- Orders for long-lasting goods probably increased in June for a second month, a sign companies are investing in new equipment even as they try to contain other costs, economists said before a report today.

Bookings for durable goods increased 0.3 percent after a 2.1 percent gain in May, according to the median of 75 estimates in a Bloomberg News survey. Orders excluding transportation equipment rose 0.5 percent, the survey showed.

Xerox Corp. is among manufacturers recovering from supply disruptions caused by the disaster in Japan, signaling factory production is likely to rebound in the second half of the year as capital spending and exports climb. At the same time, employers are cutting back on hiring, which may temper consumer spending that accounts for 70 percent of the economy.

“Orders have held up pretty well,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “We should still expect a pickup in manufacturing over the next several months, but perhaps not as strong as some had hoped.”

The Commerce Department report is due at 8:30 a.m. in Washington. Estimates ranged from a decline of 1.9 percent to an increase of 1.9 percent.

Recent reports have sent conflicting signals about U.S. factories, a leader in the economic recovery. While restraints from Japan’s earthquake and higher raw material costs earlier in the year may be wearing off, consumer demand has slowed as Americans’ employment prospects waned.

Conflicting Signals

The Institute for Supply Management’s factory index rose in June for the first time in four months, supporting the Federal Reserve’s forecast that the economy will strengthen in the second half of 2011 as “factors that are likely to be temporary” subside.

Factory production, on the other hand, was unchanged in June as auto and business equipment output declined, Fed figures showed July 15. The so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut, also indicated manufacturing in that region contracted in July for a second straight month.

“We’re not looking at robust recovery period here, but through thick and thin, it’s being sustained,” Bradley Holcomb, chairman of the Institute for Supply Management’s factory survey committee, said during a July 1 conference call with reporters. “Everybody’s cautious.”

The value of manufacturing shares reflects factories’ see- sawing performance. The Standard & Poor’s Supercomposite Machinery Index, made up of 53 companies including Caterpillar Inc., Deere & Co. and Cummins Inc., dropped to the lowest level in six months on June 13 before rising 5 percent by the close of markets yesterday.

‘Significant Improvement’

Xerox Chief Executive Officer Ursula Burns said the temblor that struck Japan in March and hurt the company’s suppliers will affect the provider of printers and business services in the second and third quarters. Nonetheless, Xerox is “already seeing significant improvement” and expects to return to normal operations in the fourth quarter, she said.

“Let me be clear: Demand is not the problem here,” Burns said in a July 22 call with analysts. “This is a supply issue. The second-quarter impact was expected and created a backlog for orders taken in the quarter, orders that we’ll be filling during the balance of the year.”

The Norwalk, Connecticut-based company reported a 41 percent increase in second-quarter profit after reducing costs and boosting revenue from services.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Vince Golle

To contact the reporter on this story: Alex Kowalski in Washington at

To contact the editor responsible for this story: Christopher Wellisz

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