Orders for durable goods in the United States climbed 4.9% in July, beating analysts' expectations of a 3% increase. However, the results were skewed by the government's now-ended $3 billion "cash for clunkers" program and a surge in non-defense aircraft.
Excluding the highly volatile transportation category, orders grew 0.8%, short of the 0.9% increase expected by analysts. Bookings for non-defense capital goods, a gauge of future business investment, dropped 0.3% after a revised 3.6% gain in the prior month, the U.S Department of Commerce said.
Unfilled manufacturers' orders for durables, a sign of future demand, fell 0.1%, marking the tenth consecutive decline. Orders for computers and related products fell 2.8%, a sign that businesses are keeping tight reins on spending.
New orders for motor vehicles and parts rose 0.9% in July from June, while orders jumped 2.7%. However that was largely due to the widespread success of the government's Car Allowance Rebate System (CARS), popularly known as "Cash for Clunkers."
Many analysts and auto dealers believe the success of CARS was merely a case of consumers accelerating purchases they would have made later in the year. If this turns out to be the case, the premature sales could hurt automakers that are now upping production in the third quarter to replenish depleted inventories depleted by factory shutdowns earlier this summer. Last week, General Motors Co. (OTC: MTLQQ) recalled 1,350 workers back to plants to replenish its low inventory.
"We borrowed heavily from future activity," Michael Moran, chief economist at Daiwa Securities America Inc. said in an interview with Bloomberg News. "I think you need to see numbers for September and October before you can draw any conclusions about its success."
The lag time between production and getting a vehicle to a dealership means when the new vehicles "will hit when there's a lower demand," J.D. Power and Associates Executive Director of Forecasting Jeff Schuster told The Washington Post.
Non-defense aircraft orders surged 107% in July, after falling 30% in June, demonstrating the sector's volatility. Despite the surge, the biggest customers of aircraft makers, commercial airlines, aren't likely to increase spending as they struggle to put passengers back in their seats. The nine largest airlines lost $600 million in the second quarter and bigger losses are expected throughout the remainder of the year.
Airlines are getting creative in luring customers to fly, as a result. Earlier this month, JetBlue Airways Corp. (Nasdaq: JBLU) quickly sold out its "All You Can Jet Pass," which enables those who purchased a $599 ticket to fly as much as they want from September 8 to October 8. And Southwest Airlines Co. (NYSE: LUV) in July offered a steep discount on fares, charging $30 for flights 400 miles or less, $60 for flights between 401 and 750 miles, and $90 for longer trips.
News and Related Story Links:
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Money Morning:
Investment News Briefs -
Bloomberg News:
U.S. Durable Goods Increase on 4.9% Aircraft -
The Washington Post:
Auto Industry Braces for Hangover After The "Clunker" Party -
The Associated Press:
Airlines May Have a Bumpy Ride in Fall and Winter -
Southwest Airlines:
Southwest Airlines Offers $30/$60/$90 Fare Sale