A report from IHS Global Insight Chief U.S. Economist Nigel Gault says that although headline durable goods orders were down 1.3 percent in August, that drop mostly reflected a plunge in volatile aircraft orders, which had surged higher in July.
Said Gault, “Under the surface, the news was good, pointing to a continuing revival in capital equipment demand. The bellwether indicator of capital equipment demand - orders for non-defense capital goods excluding aircraft - rose 4.1 percent, wiping out most of a 5.3-percent decline in July (which itself was revised from a more severe 7.2-percent drop).
“Beginning-of-quarter declines in orders have become the norm. The rebound in August provides reassurance that capital equipment demand continues to revive. There's little need for businesses to increase capacity, but they do need to address replacement needs that were neglected during the recession, and to boost productivity.
“Capital equipment spending was a major support for the economy in the first half of 2010, growing at a more than 20 perent% annual rate in both quarters. It won't rise so strongly in the third quarter – we expect a rise of around 8.5 percent –but it remains one of the stronger sectors of the economy, and one of the bulwarks against a double dip.”
Wall Street was enthused about the increase, and stocks jumped 1654 points (1.5%) on Friday in early trading.