Activity at American factories appears poised to pick up. On Monday, the Commerce Department said that non-defense capital goods orders excluding aircraft – an important proxy for business spending plans – rose 0.9% in June over the prior month. The increase followed two consecutive months of declines, including a 0.4% drop in May.
Overall, orders to American factories for durable goods increased 3.4% from May to June, but analysts cautioned against getting overly excited by the gaudy rise. The surge was propelled by higher demand for commercial aircraft – a volatile category that spiked because of Boeing booking orders at the International Paris Air Show in June. Even more sobering, total orders for durable goods – products with an anticipated life span of at least three years – are 2% lower through the first half of 2015 compared to the first six months of 2014.
Still, the 0.9% rise in non-defense capital goods orders excluding aircraft was the strongest showing since March, and other indicators suggest it might be the harbinger of better things to come in the latter half of 2015. After an extensive scale back in the wake of plunging crude oil prices, for example, energy spending appears ready to strengthen, which would help stimulate factory activity, analysts say. Furthermore, economists predict that manufacturing will make gains as employment increases compel more consumer spending, which powers about 70% of economic activity.