Increase in Orders for Aircraft and Automobiles Noted

Even as a number of areas in the manufacturing sector in the US have softened, orders for high-value items like aircraft and automobiles increased last month basing on data provided by a report from the government. The reduction in orders in some areas in the manufacturing sector added to indications of a sluggish performance of the economy.

Orders for high-priced items excluding aircraft and automobiles have gone down as companies are not finding it easy to sell their products in the international market, where a slowdown was also noted including China and Europe.

But durable goods orders have increased by 4.2 percent for July due to the increase in the orders for automobiles and aircraft. The Commerce Department indicated that the increase was the biggest since December.

An increase of nearly 54 percent was noted for orders for commercial aircraft following the signing of tentative contracts by Boeing last month where over 350 aircrafts will be delivered by the company. Automobile orders have also increased by around 13 percent.

However if these areas are not included, a decline for the second month in a row was noted as well as the fourth month in the last five.

However the underlying trends may be masked since orders for major transportation items such like large trucks and aircraft are not consistent each month. Orders for military equipment and weapons are also in a similar situation.

Due to this economists concentrate on core capital goods, which have gone down last July. A decline of 3.4 percent was noted for core capital goods, which is bigger compared to the decline of 2.7 percent last June. Taking out transportation and defense typically show a better picture in the performance of the manufacturing sector.

The possible increase in taxes and reduction in government spending that may start on January 1, may also put off an increase in orders in the near future. This means a reduction of orders by next year for businesses that supply equipment to the US government. Among the companies that will be severely affected are defense contractors.

A good gauge for growth in the US is the sales of durable goods or items that are designed to last for three years. Orders for these items increase when the economy improves and would decline with the weakening of the economy.

The report also showed that unfilled orders have increased by 0.8 percent for July, higher than the 0.4 increase for June. This gives indications of problems facing companies in completing sales.

Despite the latest slowdown, a 7.5 percent increase in orders was noted for this year even as manufacturers are expected to expand further although at a slower rate as compared to the start of the year. The slow growth rate is expected to continue until the year ends due to apprehensions on the economy and the sluggish growth in the international market.