WASHINGTON — New orders for US manufactured goods like cars and planes fell unexpectedly for a second straight month in June, posting the largest drop since August in a sign economic recovery cooled in the second quarter.
However, the Commerce Department report on long-lasting manufactured goods showed cash-flush businesses continued to invest on equipment.
That implied underlying demand remained intact with firms exhibiting confidence in the moderate economic recovery.
"The bottom line is that the data show business investment had a very strong second quarter and, although the recovery in manufacturing may be losing a little momentum, it is hardly collapsing," said Paul Ashworth, senior US economist at Capital Economics in Toronto of the Wednesday report.
Durable goods orders dropped 1 per cent after falling 0.8 per cent in May, surprising financial markets that had expected a 1 per cent increase.
But orders for non-defence capital goods excluding aircraft, a proxy for business spending, unexpectedly rose 0.6 per cent in June after increasing by an upwardly revised 4.6 per cent in May. Markets had expected a flat reading after May's previously reported 3.9 per cent increase.
Stocks on Wall Street fell as investors focused on the overall decline in orders and a full-year earnings forecast from Boeing Co that was below market consensus.
Prices for safe-haven US government bonds were little changed ahead of an auction of five-year notes. The US dollar fell against the yen.
Data ranging from consumer spending to manufacturing have suggested the recovery from the longest and deepest recession since the 1930s took a step back in the past few months.
The government is expected to report today that growth slowed to a 2.5 per cent annual rate in the April-June period from a 2.7 per cent pace in the first three months of the year, according to a Reuters survey.
Some analysts said there was a chance growth could beat expectations given signs of strong business investment. With profits booming, companies have stepped up spending on equipment and software after aggressively cutting back during the recession.
"There has been a loss of momentum in the past two months, it's yet to be seen how much of the upward momentum from earlier this year has been reversed," said Jim O'Sullivan, chief economist at MF Global in New York. "(But) I think the trend toward improvement is still intact."
Durable goods orders are a leading indicator of manufacturing, which has benefited from businesses replenishing inventories drawn down to record lows during the recession.
However, that effort appears to be running out of steam.
Durable goods orders last month had been expected to rise based on the fact that Boeing received 49 orders for civilian aircraft in June compared to only five in May. — Reuters
But non-defence aircraft orders tumbled 25.6 per cent in June after falling 30.2 per cent the prior month. — Reuters
Economist said most of aircraft orders were placed at the end of June, too late to be included in the report.
The drag on orders also came from bookings for computers and electronic products, which saw their largest decline since October. Orders for machinery recorded their biggest decline in 14 months, while those for primary metals fell by the most since March 2009.
"Overall, today's report is consistent with the recent fall back in manufacturing and slower export growth, and we expect further moderation in durable goods orders as the inventory cycle fades over the second half of the year," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.
Durable goods inventories rose 0.9 per cent, increasing for the sixth straight month. Shipments, which go into the calculation of gross domestic product, fell 0.3 per cent in June after sliding 0.7 per cent in May.
Separately, demand for loans to buy homes rose for the second straight week to the highest level since the end of June, but hovered just above 13-year lows, the Mortgage Bankers Association said.
Home purchase loan demand increased 2.0 per cent last week, but rising mortgage rates saw applications for refinancing falling 5.9 per cent.