Manufacturing saves the day...for now

A strong jump in durable goods orders is a positive economic sign. But some fear a slowing global economy may crimp demand for U.S.-made products.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Paul R. La Monica, editor at large


NEW YORK ( -- For the second straight month, a key measure of manufacturing activity rose at a much higher than expected rate.

The surprise jump in so-called durable goods orders is an encouraging sign. Demand for big-ticket items rose 1.3% while economists were predicting just a 0.1% increase. That follows a 1.3% gain in June.

It is an indication that manufacturing strength is helping to offset some of the weakness brought about by the housing mess and credit crunch.

Economists say the big reason for this increase is healthy demand from foreign nations looking to take advantage of a relatively weak dollar.

"If there has been any bright spots in the economy, it's exports. That is providing some support to the manufacturing side of the equation," said Michael Strauss, chief economist with Commonfund, a money-management firm based in Wilton, Conn.

However, some economists worry that the boost from manufacturing could be short-lived. After all, the dollar has rallied lately. And that's mainly because other economies around the globe - most notably in Europe - have begun to slow.

"The competitiveness of the dollar has been giving exports a kick," said Chris Probyn, chief economist with State Street Global Advisors in Boston. "But there are clear signs that the global economy is slowing down. And for America's economy to heal, it will be helpful to have a robust global economy. That doesn't look likely," Probyn added.

In addition, it's tough to imagine that demand for autos, which rose 1.2% in July, is sustainable. GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler have all reported dismal sales figures for the past few months due to record-high gas prices and the shift away from SUVs to smaller and less profitable cars.

So Detroit's pain should weigh on future durable goods reports.

Nonetheless, there is a hope that durable orders won't completely fall off a cliff.

Strauss said that many U.S. companies are very well-positioned to benefit from what should remain strong demand for infrastructure in emerging markets such as China and India. So that can help offset weakness in Europe.

"By September, we may be dealing with the reality that demand is softening domestically and internationally. But the good news is that demand for capital goods probably won't decline in the third quarter.

In addition, some think that the U.S. economy could start to rebound by early-to-mid 2009, which could also lessen the sting of a potential pullback in demand for exports.

"Europe's economy, as well as Japan's, is coming down dramatically and flirting with recession. But the U.S. has already been in a slowdown so it may be the first one in and first one out," said Bill Stone, chief investment strategist with PNC Wealth Management.

Strauss said that the recent strength of the dollar and pullback in the price of many commodities could help set the stage for an eventual U.S. economic recovery.

That's because pricing pressures should subside, which would be a big shot in the arm for many consumers that have been faced with soaring energy and food costs.

"One of the cures of inflation sometimes is higher inflation. Higher prices slows down demand and that leads to lower prices," Strauss said.

However, while a recovery may be in the cards soon, Strauss cautioned that an economic rebound is not going to happen overnight.

"The pain in discretionary spending for the consumer should get tempered a little bit and that may help improve economic conditions. But it will take months, if not quarters, for that to unfold," he said.  To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.