New orders for U.S. manufactured capital goods rose for a second straight month in July as demand for machinery and a range of other products picked up, offering a tentative sign that a business spending downturn was starting to ease. Most of the uptick was due to civilian aircraft orders, but orders for core capital goods, the kind of business investment that has been conspicuously absent for the past few years, posted their largest gain since January, suggesting firms may finally feel comfortable making the large-scale investments that signal confidence in future demand.
The economic outlook also was boosted by another report on Thursday showing an unexpected drop in the number of Americans filing for unemployment benefits last week, indicating sustained labor market strength.
Together, the data support the view that the Federal Reserve will raise interest rates in December. Fed Chair Janet Yellen could give guidance on the near-term outlook for U.S. monetary policy when she speaks on Friday at a global central bankers' conference in Jackson Hole, Wyoming.
"This kind of data are consistent with what the Fed is looking for in terms of the labor market and economic growth. If we get more data like this, that will suggest we are likely to see an interest rate increase, most likely in December," said Gus Faucher, senior economist at PNC Financial Services Group.
July’s rise was led by more robust demand for transportation equipment, orders of which rose 10.5%. That was driven by the volatile civilian aircraft and parts category, which showed 89.9% increase in orders over the month. Separate data from Boeing Co., the largest aerospace company in the U.S., showed 73 orders for large jets in July, up from 12 in June.
After steadily climbing in the first few years of the recovery, manufacturing output has mostly flattened in the past two years. A sharp drop in oil prices curbed new investment in the energy sector, and a strengthening dollar made U.S.-made goods more expensive for overseas buyers. Still, steady hiring and low interest rates have stoked domestic appetite for some durable items, such as cars, helping counter the lack of capital investment and foreign demand.