NEW YORK (CNNfn) - Orders for long-lasting goods climbed by a surprisingly strong 3.3 percent in July, the government said Wednesday, powered by surging demand for industrial machines as the economy continues to hit on all cylinders.
Orders for durable goods -- or items expected to last at least three years -- jumped to $204 billion on a seasonally adjusted basis in July, the Commerce Department said. That was far above economists' expectations for a rise of 1 percent and topped June's upwardly revised gain of 0.5 percent.
A strong durable goods report, under normal circumstances, would tend to reinforce the idea inflationary pressures still lurk in the U.S. economy. But to keep the economy from overheating, the Federal Reserve's policy committee on Tuesday raised two short-term interest rates by a quarter point, while suggesting that no further moves are imminent.
That, economists said, left the bond market in a wait-and-see mode before the Fed next meets Oct. 5. The 30-year bond continued to rally Wednesday, rising 10/32 in price for a yield of 5.91 percent.
"Across the board [the report] is strong, yet the bond market is unfazed," said Anthony Crescenzi, chief bond analyst at Miller Tabak. "This reveals the market's mindset now -- in slowdown mode thinking the Fed's rate hike might accomplish the task of slowing the economy.
"The burden of proof is on the bears right now," added Crescenzi.
Bond market experts said the report is also an indicator the recent sluggishness in manufacturing -- one of the few drags on the U.S. economy -- may have hit bottom and could be poised for rebound.
"There is unequivocal strength in this report," said Kevin Flanagan, a money market expert at Morgan Stanley Dean Witter. "We're seeing a rebound in the backlog of orders, and evidence that the manufacturing sector has turned the corner."
Unfilled orders climbed 0.4 percent in July, after a drop of 0.7 percent in the prior month.
Excluding transportation-related goods such as airplanes, the index rose 3.7 percent, the largest such gain in 2-1/2 years. That compared with the upwardly revised increase of 0.4 percent in June and tops economists' estimates of a 1.1 percent rise.
Orders for industrial machinery and equipment experienced the largest percentage gain, up 8.4 percent to $39.3 billion, their biggest rise since January 1995 and completely erasing the 8.4 percent drop in May and June combined.
Also getting a jolt upward were orders for electronics and electrical gear, which rose 5.9 percent to $37.3 billion. Non-defense capital orders rose 7.3 percent in July, after a 4.2 percent decline in June.