Ahead of the Bell: US durable goods

US durable goods orders expected to show big drop in August due to volatile swing in aircraft

Associated Press
US durable goods fell 18.2 percent in August
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In this Sept. 19, 2014 photo, workers assemble body armor in the sewing area in the Point Blank Body Armor factory in Pompano Beach, Fla. The Commerce Department releases its report on August durable goods orders on Thursday, Sept. 25, 2014. (AP Photo/J Pat Carter)

WASHINGTON (AP) -- The Commerce Department issues its report on August durable goods orders. The report will be released Thursday at 8:30 a.m. Eastern.

ORDERS DOWN: The expectation is that durable goods orders fell a steep 18 percent in August, according to a survey of economists by data firm FactSet.

AIRPLANE BLIP: The July increase in orders was a record monthly gain but it was skewed by the volatile commercial aircraft category, which surged in July. The expectation is that after a big jump, airplane orders will plunge in August and that will drive the index down.

A separate report from the Federal Reserve showed that manufacturing output declined 0.4 percent in August, marking the first decline in seven months. The drop in production came from a sharp fall in production at auto plants, due mainly to seasonal adjustment issues.

Output of motor vehicles and parts dropped after a big July increase. But the reversal was not viewed as worrisome. The July figure had been boosted because many plants did not shut down as they normally do to retool for new models.

The fact that there were fewer plant shutdowns in July made output look stronger after the government adjusted the figure for normal seasonal variations. That adjustment also made August look weaker.

Economists believe that production gains in a number of industries in August outside of autos supported their view that factory activity should remain healthy for the remainder of the year.

Broad increases in manufacturing this year have pointed to stronger growth across the economy, suggesting that manufacturers expect business investment and consumer spending to improve in the coming months.

A closely watched index compiled by the Institute for Supply Management showed that manufacturing rose to the highest level in more than three years. The ISM manufacturing gauge increased to 59 in August, the highest point since March 2011. The index in July stood at 57.1. Any reading above 50 signals that manufacturing is growing.

Factories are benefiting from strong demand for aircraft, furniture and steel. The boost in manufacturing has helped to offset a slowdown in home building. But U.S. manufacturers face challenges in some of their major export markets. The European economy is performing sluggishly while slower growth in China has weighed on business activity in that country.

The U.S. economy, as measured by the gross domestic product, grew at a 4.2 percent annual rate in the April-June quarter. It was a significant rebound from the 2.1 percent contraction in the first quarter that reflected in part a severe winter that disrupted the economic activity. That GDP figure will be revised for a final time on Friday and many economists believe it will adjusted higher, to a growth rate of 4.6 percent.

Economists expect that continued gains in employment will spur consumer spending and translate into annual growth of around 3 percent in the second half of this year.

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