Durable goods orders unexpectedly increased in April

WASHINGTON – Orders for durable goods unexpectedly climbed for a third month in April, a sign U.S. factories will help the world’s biggest economy strengthen.

Bookings for goods meant to last at least three years rose 0.8 percent after a 3.6 percent gain in the prior month that was stronger than previously reported, Commerce Department figures showed Tuesday in Washington. The median forecast of 68 economists surveyed by Bloomberg called for a 0.7 percent drop. Orders excluding transportation equipment also advanced.

A pickup in growth is propelling orders for electrical equipment and computer networks, benefiting companies such as Cisco Systems Inc. and Whirlpool Corp. Demand for cars and homes, together with the need to replace aging machinery, will underpin investment at the same time the global economy starts to improve.

“Manufacturing is one of the sectors that’s doing well, and it’ll contribute to growth,” Tom Simons, an economist at Jefferies LLC in New York, said before the report. “Orders will continue to grow in the next few months as pent-up demand gets released. We’re going to see some better activity on the manufacturing front.”

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Estimates in the Bloomberg survey ranged from decline of 4.3 percent to a gain of 2 percent after previously reported 2.5 percent increase in March.

Stock-index futures maintained gains after the figures, with the contract on the Standard & Poor’s 500 Index expiring in June rising 0.4 percent to 1,905 at 8:38 a.m. in New York.

Excluding transportation equipment demand, which is often volatile, orders increased 0.1 percent after a 2.9 percent gain that was stronger than previously estimated. They were projected to be unchanged, according to the Bloomberg survey median.

Military orders

The April figures reflected a 7 percent gain in demand for computers and a 3.4 percent increase in orders for fabricated metals. Bookings for military hardware surged 39.3 percent, the most since December 2012.

The figures reflected a 4.1 percent drop in bookings for commercial aircraft, according to the Commerce Department’s report. Boeing Co., the Chicago-based aerospace company, said it received 70 orders for planes last month, down from 163 in March.

Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in items like computers, engines and communications gear, decreased 1.2 percent after a 4.7 percent surge the previous month that was the strongest since November.

Capital equipment

Shipments of those goods, used in calculating gross domestic product, fell 0.4 percent after rising 2.1 percent, also more than previously estimated.

San Jose, Calif.-based Cisco reported third-quarter sales and profit that topped analysts’ estimates as rising data traffic from smartphones and tablets fueled demand for networking equipment while the company cut costs.

Economic growth is projected to accelerate to a 3.5 percent annualized rate this quarter after stagnating in the first three months of the year, according to the median estimate in a Bloomberg survey of economists. Business investment fell at a 2.8 percent rate last quarter, the weakest result since the fourth quarter of 2009, reflecting a 5.5 percent plunge in equipment spending.

The housing industry may also be a source of strength for manufacturing. Sales of new and previously owned homes climbed in April, reports showed last week. Home appliance maker Whirlpool, based in Benton Harbor, Mich., is among businesses that are upbeat.

Housing market

“We are, I would say, still in the early stages of a rebound in the housing market,” Chief Financial Officer Larry Venturelli said at a May 14 homebuilding conference. Sales are getting a boost from purchases of appliances and demand for remodeling, he said.

Manufacturing expanded in April by the most this year with broad-based gains that signal factories will help propel the economy in the second quarter. The Institute for Supply Management’s index advanced to 54.9 from 53.7 a month earlier, the Tempe, Arizona-based group said on May 1.

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