WASHINGTON (Reuters) - Weak demand for new cars and civilian aircraft pulled U.S. orders for costly durable goods down in June but an underlying trend toward an improved pace of manufacturing activity continued.
Commerce Department data on Wednesday showed new durable goods orders fell 2.5 percent in June, the largest percentage drop since January, after rising 1.3 percent in May.
But after stripping out the volatile transportation component, orders were up 1.1 percent in June, the biggest advance in four months, buoyed by new orders for machinery.
It was the second consecutive month that this orders excluding transportation goods posted sturdy gains, coming on the heels of May’s 0.8 percent gain.
Economists said the report on factory activity, coming in the wake of earlier data showing tentative signs of house price stability, was encouraging and added to signs that a 19-month old housing-led recession was winding down.
“The decline in durable goods orders was not nearly as bad as it looks. Overall, this report adds to the evidence that the recession is over, or close to over, but there is still little evidence of any meaningful recovery,” said Paul Ashworth, a senior U.S. economist at Capital Economics in Toronto.
U.S. stocks opened lower as investors focused on the overall figure for durable goods orders, while government bond prices rose, attracting a safe-haven bid.
Durable goods orders are a leading indicator of manufacturing activity. Manufacturing which accounts for about one-third of the economy, provides a good barometer for overall business health.
Overall orders for long-lasting goods were largely pulled down by a 38.9 percent slump in orders for non-defense aircraft and parts.
However, non-defense capital goods orders excluding aircraft — a closely watched proxy for business spending — rose 1.4 percent in June, spurring hopes that the manufacturing sector was turning the corner. This component increased 4.3 percent in May.
“This is potentially a sign that the worst of the weakness in business spending is behind us and we could see modest improvement in capital spending in the second half of the year,” said Gary Thayer, senior economist at Wells Fargo Advisors in St. Louis.
Even more encouraging, inventories of manufactured durable goods fell 0.9 percent in June after dropping 1.1 percent in May. Inventories have declined for six straight months.
“Manufacturers are finally starting to work of excess inventories that were built up during the second half of last year,” said David Huether, chief economist at the National Association of Manufacturers in Washington.
“Working off excessive inventories is a critical ingredient for a turnaround in manufacturing production going forward and today’s report is good news on that front.”
But shipments of manufactured durable goods fell 0.2 percent in June, declining for 11 straight months. This was the longest streak of consecutive monthly declines since the series started in 1992, the Commerce Department said.
Separately, U.S. mortgage applications fell for the first time in four weeks, driven by a drop in demand for home refinancing loans as interest rates climbed, data from an industry group showed on Wednesday.
Applications for loans to buy a home, an early indicator of sales, were flat. Lack of interest for purchase loans does not bode well for the hard-hit U.S. housing market, which has otherwise been showing signs of stabilization.
Additional reporting by Julie Haviv and Ellen Freilich in New York; Editing by Neil Stempleman