07/27/2015

A gauge of U.S. business investment plans rebounded solidly in June, suggesting the drag on manufacturing from capital spending cuts was starting to ebb.

The slightly upbeat report bolsters the economic growth outlook and supports views the Federal Reserve will raise interest rates later this year. The Fed's policy-setting committee meets on Tuesday and Wednesday.

The Commerce Department said on Monday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.9 percent last month after an unrevized 0.4 percent drop in May. The increase followed two straight months of declines.

Economists had expected these so-called core capital goods to increase 0.4 percent in June.

U.S. financial markets were little moved by the report as a plunge in Chinese stocks overnight sparked concerns about the global economy. Prices for U.S. government debt rose, while U.S. stock index futures were trading lower.

Deep investment spending cuts in the energy sector in the aftermath of a more than 60 percent plunge in crude oil prices last year have weighed on factory activity. But there are signs that the energy spending rout is close to an end.

Data on Friday showed U.S. energy firms added 21 oil rigs last week, marking the third increase over the past 33 weeks and bringing the total rig count to its highest since late May.

Schlumberger Ltd (SLB.N), the world's No. 1 oilfield services provider said last week it believed the North American rig count may be bottoming and that a slow rise in both land drilling and completion activity could occur in the second half of the year.

Schlumberger and rival Halliburton (HAL.N) have slashed their capital expenditure budgets for this year.

Manufacturing has also been hammered by a strong dollar and slow global demand, which have squeezed profits of multinational corporations such as Whirlpool Corp (WHR.N) and Caterpillar Inc (CAT.N).

The dollar has gained 14.6 percent against the currencies of the United States' main trading partners since June 2014, taking a bite out of the profits of multinational corporations.

Factories also have been hampered by businesses placing fewer orders while working through a stockpile of goods accumulated last year.

Shipments of core capital goods, which are used to calculate equipment spending in the government's gross domestic product

measurement, slipped 0.1 percent in June after a 0.3 percent fall in May.

That suggests business spending was probably a drag on second-quarter GDP. The government will release its second-quarter GDP snapshot on Thursday.

An 8.9 percent jump in transportation equipment boosted overall orders for durable goods - items ranging from toasters to aircraft that are meant to last three years or more - which increased 3.4 percent last month.

Transportation was buoyed by a 66.1 percent surge in aircraft orders, which reversed May's 31.6 percent plunge. Boeing (BA.N) reported on its website that it had received 161 orders last month, up from only 11 in May.

Orders for automobiles and parts edged up 0.2 percent after slipping 0.3 percent the prior month.

Unfilled orders for durable goods ticked up 0.1 percent after two straight months of declines. Durable goods inventories increased 0.4 percent, the largest increase since last December, after falling 0.2 percent in May. 

By Lucia Mutikani - Reuters (Editing by Andrea Ricci)