* Durable goods orders rise 0.7 percent in June
* Orders excluding transportation increase 0.8 percent
* Core capital goods orders up 1.4 percent, shipments fall
(Adds details from report)
By Lucia Mutikani
WASHINGTON, July 25 A mixed reading on the
health of U.S. business investment on Friday suggested the
economy may not have rebounded as strongly in the second quarter
as previously believed, but it offered hope for the rest of
Non-defense capital goods orders excluding aircraft, a
closely watched proxy for business spending plans, rebounded 1.4
percent after declining by a downwardly revised 1.2 percent the
prior month, the Commerce Department said.
However, shipments of these so-called core capital goods
fell 1.0 percent. Core capital goods shipments are used to
calculate equipment spending in the government's gross domestic
It was the third month of decline in shipments, prompting
some economists to temper their second-quarter growth estimates.
"The weak performance in core capital goods shipments during
the quarter suggests that this segment of the economy is
unlikely to contribute much to economic activity," said Millan
Mulraine, deputy chief economist at TD Securities in New York.
Morgan Stanley trimmed its second-quarter growth estimate by
one-tenth of percentage point to a 3.2 percent annual rate,
while JPMorgan lowered its forecast to 2.6 percent from 2.7
The government will release its first snapshot of
second-quarter GDP next Wednesday. The economy contracted at a
2.9 percent rate in the first three months of the year, with
business spending on equipment falling at a 2.8 percent rate.
But the swing back in core capital goods orders last month
offered hope for growth in the third quarter. That trend, if
sustained would be a boost to growth.
In addition, unfilled core capital goods orders increased a
solid 1.2 percent after rising 0.5 percent in May.
"The momentum in core orders in the second quarter bodes
well for equipment and software spending in the second half of
the year," said Michael Gapen, a senior economist at Barclays in
MAY ORDERS REVISED DOWN
Some economists, however, worry that business investment
might not pick up much because of the sharp downward revision to
May's core capital goods orders from the previously reported 0.7
"The weakness late in the quarter implies a soft trajectory
for capital spending heading into the third quarter," said
Michael Feroli, an economist at JPMorgan in New York.
"All in all, it's nice to see that capital expenditure has
rebounded from its first-quarter hole, but the latest data do
nothing to indicate that capital spending is about to shift into
Other details of the report painted a fairly upbeat picture
of manufacturing, consistent with other data on factory
activity. Orders for long-lasting manufactured goods increased
0.7 percent in June as demand increased from transportation to
machinery and computers and electronic products.
The increase in orders for these goods, which range from
toasters to aircraft that are meant to last three years or more,
followed a 1.0 percent drop in May.
Unfilled orders for durable goods rose 0.8 percent last
month after rising 0.7 percent in May, showing a building up of
backlogs that will keep the nation's factories busy for a while.
Durable goods inventories rose 0.4 percent. That supports
views inventories would be a boost to second-quarter growth. A
slow pace of inventory accumulation was behind the sharp
contraction in output in the first quarter.
"It is further encouragement that the economy will return to
growth in the second quarter and should continue to be strong
through the remainder of 2014," said Tim Quinlan, an economist
at Wells Fargo Securities in Charlotte, North Carolina.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)