WASHINGTON -- New orders for durable goods rebounded with a vengeance in August as automakers resumed production after routine retooling shutdowns in July, the government reported yesterday.
Nonetheless, the report showed broad-based strength, prompting analysts to say growth in the manufacturing sector has still not shown signs of cooling off. "There's no sign of imminent slowing in this report," said Robert Brusca, chief economist of Nikko Securities Co. International.
New orders for goods designed to last more than three years, from toaster ovens to jets, posted the biggest gain in more than 18 months, surging 6% in August after dropping 4% in July, the Commerce Department reported yesterday. Analysts had expected about a 3% rebound.
"Motor vehicles and parts contributed to over half of this month's increase and over half of last month's decline, which was heavily affected by the growing practice of shutting down for two weeks in July," the report said.
Transportation equipment, including vehicles and parts, surged 19.1% in August, after declining 14.8% in July. The gain was driven by autos but also helped by a sharp rebound in civilian aircraft orders, a department official said.
New orders excluding transportation equipment grew 2.3% in August, also the largest gain in more than a year and a half, with the surge powered by the gains for the other three goods categories. Primary metals grew 4.8%, industrial machinery climbed 4%, and electronics gained 1.2%.
Jeffrey Given, chief economist of Genetski & Associates in Chicago, said the report fits with his view that in the next few quarters growth will remain stronger than the Federal Reserve and other inflation hawks would like to see.
"Both manufacturing and the overall economy will continue to do well and surprise people through this year and into next," Given said. The Fed's five tightening moves so far this year won't start constraining growth until sometime next year at the earliest, he said.
Auto production was robust in August and is expected to remain solid for at least a few more months. Also, business investment in new machines and other capital goods is expected to remain solid this year and next.
But Brusca said, "The real question is not how many cars automakers can make but how many they can sell." He also noted that the housing market is declining enough to slow sales of appliances and other household durable goods.
David Kelly, senior economist of Lehman Brothers, said yesterday's report is troubling from an inflation standpoint because it showed continued growth in areas, such as primary metals and machinery, which are already running near full capacity. "The report does increase the threat of higher inflation," he said.
Kelly predicted that durable goods orders along with the manufacturing sector as a whole will begin to level off, leading to sustainable growth in the 2% to 2.5% range in the second half of this year. But it remains to be seen, he added.
"Models and intuition tell us it will happen, but recent data doesn't tell us it will happen in the next month or two," Kelly said.
In general, yesterday's report probably overstates underlying strength in durable goods production, economists said. The 6% August gain and the 4% July decline yield an average monthly gain of 1%, which they said is probably an accurate portrayal of current growth in production.
"That seems to be about what the trend is," Brusca said.
Also, yesterday's report said durable goods shipments surged 6.1% in August after a 2.4% drop in July, and unfilled orders fell 0.3% in both months.
Adding to the report's strength, new orders for capital goods climbed 3.7% in August, while orders for non-defense capital goods increased 3%.