Transcripts

Durable Goods Prove Reliable To The Ailing Economy

SUSIE GHARIB: A glimmer of hope for the economy tonight. It looks like business spending may be starting to pick up. The Commerce Department said today that demand for long- lasting goods, like airplanes and washing machines, unexpectedly rose last month, thanks in large part to record exports. Orders for durable goods jumped 1.3 percent, matching June's revised pace. Economists had expected a decline of 0.4 of a percent. As Erika Miller reports, today's data is an encouraging sign for U.S. economic growth.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers are reining in spending, due to tighter credit conditions and high energy costs. But today's durable goods report suggests that businesses are ramping up spending, despite similar challenges. Core investment spending by private sector firms rose by 2.6 percent in July, the biggest increase since April. Barclays Capital economist Dean Maki says that strong showing lowers the odds the U.S. economy will slip into recession.

DEAN MAKI, CHIEF U.S. ECONOMIST, BARCLAYS CAPITAL: The fact that business investment spending and core capital goods orders and shipments are picking up in the third quarter is a very strong signal that overall growth is going to continue in the third quarter, continue to rise at a moderate pace.

MILLER: Some companies may be taking advantage of equipment tax write- offs that expire at the end of the year. Economist Anna Piretti of BNP Paribas believes many firms are also banking on another fiscal stimulus package.

ANNA PIRETTI, SR. ECONOMIST, BNP PARIBAS: If we do receive that, clearly, it's going to boost demand even further. And so, it does make sense for businesses to plan ahead and start investing today, so they can reap the benefits of increased consumption that might stem from a second stimulus package in early '09.

MILLER: Orders were also boosted by strong demand overseas. Some worry that source of support could fade if the dollar continues to appreciate or global economies slow. However, economists see other offsetting factors.

MAKI: We do think business investment spending will continue to grow at a moderate pace in the second half of the year. Business profitability outside of the financial sector, where write-offs are occurring, is holding up reasonably well and that does suggest that business investment spending will also continue to grow.

MILLER: If he's right, that could also be good news for workers. Although there's usually a lag time, business investment spending is historically one of the best leading indicators of hiring in the private sector. Erika Miller, NIGHTLY BUSINESS REPORT, New York.