The Commerce Department reported Wednesday that demand for durable goods grew by 1.4 percent last month to total $215.4 billion. It was the third straight month that manufacturers have seen orders increase following three consecutive declines at the beginning of the year that had raised worries about the health of manufacturing.
The June increase was unexpected. Private economists had been forecasting a decline of around 1 percent. However, a drop-off in demand for commercial aircraft was offset by strength in a number of other sectors from computers to communications equipment.
The overall economy grew by 3.8 percent at an annual rate in the first three months of this year and analysts believe growth in the April to June period will be almost as strong, coming in at around 3.5 percent despite a surge in oil prices this year and continued interest rate increases from the Federal Reserve. The government will release its first look at the gross domestic product in the second quarter on Friday.
Federal Reserve Chairman Alan Greenspan told Congress last week that he believed the economy was on a solid path and signaled that the central bank would continue raising interest rates at a gradual pace to make sure a rebounding economy does not trigger unwanted inflation.
The 1.4 percent increase in durable goods in June followed a 6.4 percent surge in orders in May, which reflected a big increase in sales of commercial aircraft. After soaring by 167 percent in May, orders in this volatile sector fell by 24.2 percent in June.
Orders for new cars and auto parts edged down a slight 0.1 percent in June after having risen by 0.6 percent in May. Automakers, led by General Motors, have brought back attractive incentive offers to reduce a backlog of unsold cars which had caused production cutbacks in recent months.
Excluding transportation, durable goods orders were up a solid 2.6 percent in June, nearly triple the 0.9 percent rise in orders outside of transportation in May.
The strength outside of transportation was led by an 18.3 percent surge in demand for communications equipment and an 8.7 percent jump in orders for computers and related products.
Orders for non-defense capital goods excluding aircraft rose by 3.8 percent in June, the biggest increase since a 4.4 percent rise in January. This category is closely watched for the clues in can give about industry plans to expand and modernize.