Orders For Durable Goods Rise In June: Winners & Losers

Business houses have for long been conservative toward investments amid trade uncertainty. But, the growth in durable orders in June shows that business investments are holding up.

The uptick in demand is favorable for manufacturers of long-lasting products. But, gold prices remain subdued as increased durable goods orders may dampen Fed’s enthusiasm to adopt a more aggressive policy easing stance.

Orders for Durable Goods Rose in June

According to the Commerce Department, overall orders for durable goods, or those manufactured products intended to last for at least three years, rose 2% last month, much higher than 0.7% estimated by analysts. Orders for durable goods not only picked up in June after two straight months of a decline but also marked the fastest growth since last August.

Demand for long lasting goods was driven by an uptick in new orders for transportation goods. New aircraft orders soared 75.5% in June following two straight months of sharp declines. Needless to say, grounding of Boeing’s 737 MAX airplanes had earlier affected demand for new aircraft.

Orders for cars and car parts went up 3.1% in June, much higher than 0.9% in May. And even if the volatile transportation category is excluded, orders increased at a 1.2% pace, the second successive month of growth.

Other categories that have posted gains include fabricated metal products, machinery, communications equipment, networking gear and primary metals. In fact, core capital-goods orders, a key measure of business investment, increased 1.9% to notch the biggest gain in nearly a year and half.

Thursday’s encouraging report was in line with the factory orders report that suggests that momentum is slightly building in the manufacturing sector.

Factory Output Accelerates in June

U.S. factory output increased at the fastest pace this year in June on an uptick in automotive sector production. According to Fed data, manufacturing output increased 0.4% last month after rising 0.2% in May. Most of the gains came from the motor vehicles and parts segment, which posted a substantial increase of nearly 3%.

The Fed said that “an increase of nearly 3% per cent for motor vehicles and parts contributed significantly to the gain in factory production; excluding motor vehicles and parts, manufacturing output moved up 0.2%.”

Other sectors that saw gains included petroleum and coal products, and computer and electronic products. Some critics, by the way, may say that overall industrial production remained unchanged in June. But, that was purely due to lackluster performance by the utilities sector as “milder-than-usual temperatures” hurt demand for air conditioning. Nonetheless, it can be concluded that American manufacturing is regaining foothold despite trade concerns and a global economic slowdown.

Here’re the Winners

It’s quite obvious that companies that produce long-lasting goods will gain in the near term due to the spike in demand. Hence, investing in such stocks seems prudent for now. Some of the prominent names include Gentex Corporation (NASDAQ:GNTX) , Stratasys Ltd. (NASDAQ:SSYS) , John Bean Technologies Corporation (NYSE:JBT) and Comtech Telecommunications Corp. (NASDAQ:CMTL) .

Gentex Corporation provides digital vision, connected car, dimmable glass, and fire protection products. The company, currently, flaunts a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has increased 1.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 3.1%, in contrast to the Zacks Investment Research

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Written By: Zacks Investment Research