Most economists expected orders to fall about 0.2 percent due to the now-concluded strike against General Motors and the ongoing Asian economic crisis.
The bond market largely ignored the report, despite its surprising strength. The yield of the 30-year Treasury fell to 5.417 percent in morning trading.
Orders for autos and auto parts did fall in July, but the decline was more than made up for by a big gain in orders for aircraft. Transportation orders rose 0.3 percent to $39.5 billion, the first gain since April. Excluding transportation orders, orders for durable goods rose 3 percent to $148 billion, the biggest rise since August 1997.
The report shows a resilient manufacturing sector, which has been buffeted by weak orders from Asia and increased competition globally. "The manufacturing sector is still moving forward," said Cynthia Latta, economist at DRI/McGraw Hill.
"We're pretty fortunate. We're feeling the impact of Asia, but the domestic economy is so strong."
Once again, American consumers were the big buyers; orders to the nondefense, non-aircraft capital goods industries (which serves as a proxy for business investment) fell 1.5 percent.
"The consumer sector is going gang-busters," Latta said.
Shipments of durable goods, an indicator of current activity, fell 0.2 percent to $186.2 billion in July, behind a 2.4 percent drop in transportation shipments. Unfilled orders for durable goods, an indicator of future production, rose 0.3 percent to $506.2 billion.
Durable goods are items, such as autos, airplanes, computers and refrigerators, that are designed to last at least three years. Economists track orders for durables carefully because they are highly correlated with the business cycle.
The biggest gain in orders in July came from electronic and electrical equipment, which rose 12 percent to $33.8 billion. Orders for industrial machinery (which includes computers and semiconductors) rose 2 percent to $37.6 billion. Orders for primary metals dropped 0.2 percent to $14.4 billion, the third decline in a row.
Defense orders dropped 0.1 percent to $5.6 billion. Orders excluding defense rose 2.5 percent to $181.9 billion.
Written By Rex Nutting, Washington bureau chief for CBS MarketWatch