Demand for durable goods slips 1 percent in June

WASHINGTON - Orders to U.S. factories for big-ticket manufactured goods fell in June as demand for commercial aircraft plummeted. But businesses increased spending on capital goods for a second straight month, a sign that manufacturing continues to help keep the economic recovery afloat.

Demand for durable goods dropped 1 percent last month to a seasonally adjusted $190.5 billion, the Commerce Department said Wednesday. It was the second straight monthly decline and the largest drop since August 2009.

Orders for commercial aircraft fell 25.6 percent in June, although seasonal adjustments kept the report from reflecting a strong month for Boeing. Without the volatile transportation sector, orders fell by 0.6 percent.

Manufacturing has helped drive growth during the early stages of the recovery. A slowdown in orders could be a sign that the recovery is losing strength.

Still, economists said the June report wasn't as bad as the headline number. Business spending for machinery and equipment edged up 0.6 percent, following a 4.6 percent surge in May. And positive earnings reports could lead to further gains in net income, an encouraging sign for growth in the rest of the year.

"Overall, we have no doubt this data will play badly in the markets, but it isn't actually that terrible," said Paul Ashworth, a senior U.S. economist with Capital Economics. "The bottom line is that it shows business investment had a very strong second quarter and, although the recovery in manufacturing may be losing a little momentum, it is hardly collapsing."

June's overall durable goods orders were 16.5 percent higher than the seasonally adjusted $176 billion in orders from a year ago, when the economic recovery had yet to take hold. But they were below the pre-recession peak of $229.5 billion in July 2007.

Durable goods are expected to last three or more years.

Last month's decline hit most major industries, including machinery, primary metals and electronics. Motor vehicles, electrical equipment and appliances were among the few bright spots.