US business activity unexpectedly rose in August, suggesting that companies continue to expand amid the sell-off in credit markets. Many companies still have the ability to increase spending without new borrowing, due to the historical string of profit growth increases over the last few years. I continue to believe manufacturing will help boost US growth over the intermediate-term as companies rebuild depleted inventories on rising confidence in the sustainability of the current expansion.
Orders placed with US factories rose more than forecast in July as customers bought more aircraft, machinery and electronics. Orders for durable goods, which make up over half of factory demand, surged a revised 6% in July versus a 1.8% gain the prior month. This gain was paced by a 7% gain in orders for computer and electronic equipment. July orders for capital goods excluding aircraft and military equipment, a gauge of future business investment, gained 1.7% after falling .2% the prior month. Orders for automobiles surged 11%, the most since January 2003. At July’s sales pace, the amount of goods on hand is 1.21 months’ worth versus 1.24 months worth in June. Factory Orders should remain healthy over the intermediate-term. The average price of regular gasoline fell to $2.75/gallon in August versus $2.86/gallon in July. I continue to believe consumer confidence will rebound back to cycle highs over the intermediate-term as housing fears subside, the job market remains healthy, wages continue to substantially outpace inflation, interest rates remain historically low, inflation decelerates further and stocks resume their major uptrend.