US durable goods, trade data boost Q2 growth estimate

New orders for key US-made capital goods unexpectedly fell in June, but a fifth straight monthly increase in shipments suggested that business spending on equipment helped to boost economic growth in the second quarter.Signs that the economy gathered speed in the last quarter were also bolstered by other data yesterday showing a sharp narrowing in the goods trade deficit in June and increases in both retail and wholesale inventories.The bullish reports came on the eve of the government’s advance second-quarter gross domestic product estimate today, prompting economists to raise their forecasts to as high as a 3.5% annualised rate.The economy grew at a 1.4% pace in the first quarter. “The economy still has legs in this long expansion from the end of the recession.The only risk we see is that the economy is running out of workers to do the heavy lifting and make us grow,” said Chris Rupkey, chief economist at MUFG in New York.The Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.1% last month.That was the first drop since December and followed a 0.7% jump in May, which was the biggest gain since January.Economists had forecast core capital goods orders rising 0.3% last month.Shipments of core capital goods increased 0.2% after rising 0.4% in May.Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.They have risen for five consecutive months.Prices for US Treasuries were trading lower, while the dollar rose against a basket of currencies.US stocks rose to new record highs, also cheered by better-than-expected profits from Facebook and Verizon.The increase in equipment spending has mostly been driven by the energy sector, where oil and gas drilling has increased significantly after declining in the aftermath of the collapse in crude oil prices.Momentum is, however, slowing as drilling activity cools.The energy sector recovery is supporting manufacturing by offseting some of the drag from declining motor vehicle production.Manufacturing accounts for about 12% of the US economy.In other data yesterday, the Commerce Department said the goods trade deficit fell 3.7% to $63.9bn in June amid a rise in exports.Goods exports increased $1.8bn to $128.6bn last month. Imports of goods fell $0.7bn to $192.4bn.Separately, both retail and wholesale inventories increased 0.6% in June.A smaller goods trade deficit and increased stock accumulation are a boost to GDP growth.However, rising inventories could weigh on economic growth in the coming quarters.“Stockpiling is not always good news for the economy.If the accumulation of inventories is in anticipation of a quickening demand environment, that is generally positive,” said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.“If it is a result of product simply not moving because demand is drying up, that clearly is not a good signal.”While another report from the Labour Department yesterday showed initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 244,000 for the week ended July 22, layoffs remain low and are consistent with a tightening labour market.Claims have now been below 300,000, a threshold associated with a robust labour market for 125 straight weeks.That is the longest such stretch since 1970, when the labour market was smaller.The labour market is near full employment, with the jobless rate at 4.4%. Claims are volatile around this time of the year as automakers shut assembly plants for annual retooling.Some manufacturers like General Motors are extending their summer shutdowns to manage excess inventory from falling sales.Economists say this could be throwing off the model used by the government to strip out seasonal fluctuations from the data, causing swings in the weekly numbers.“The song remains the same.Companies are very reluctant to lay off workers, presumably because of the difficulty in replacing them, and the labour market is tight,” said John Ryding, chief economist at RDQ Economics in New York.