A Boeing 787 Dreamliner lands at Farnborough airport, ahead of the Farnborough International Airshow in England. Deliveries of the long-range passenger jet to the first Japanese customer have been delayed by more than two years due to production problems. Boeing executives have said they aim to deliver the first Dreamliner to Japan's All Nippon Airways by the end of 2010, but they have cautioned that the delivery could be delayed to early 2011.
Cash-rich corporations and global growth have been driving the recovery in U.S. durable goods orders and investors will get another look Wednesday at what has been one of the few economic bright spots.
Durable goods orders in June are forecast to have increased by 1 per cent, compared with a 0.6-per-cent decline in May, according to a survey of economists by Bloomberg.
"An updraft in Boeing aircraft bookings and ongoing strength in business spending likely lifted durable goods orders for the sixth time in seven months," said Sal Guatieri, a senior economist with BMO Nesbitt Burns Inc.
WHAT ARE THE EXPECTATIONS?
If the transportation sector is excluded, durable goods orders in June are forecast to have increased by 0.4 per cent, compared with a 1.6 per cent rise in May.
"Capital goods orders, excluding aircraft and defence, surged 37 per cent annualized in the past four months to May, flagging another solid gain in business equipment spending in the second quarter," Mr. Guatieri said.
Unfortunately, spending on capital equipment accounts for only 7 per cent of the economy, Mr. Guatieri said. "It would be nice to see businesses spending more on workers than equipment."
The main drivers of business investment in the U.S. have been high-tech equipment, software upgrades and the replacement of obsolete equipment as companies spend to remain competitive, he said. It has helped U.S. productivity to reach record highs.
The industrial sector of the U.S. economy has led the recent recovery, which has come without sector stalwarts such as housing and banking, but there is a risk the industrial sector could slow. "After taking it on the chin during the recession, the U.S. manufacturing sector is in an inventory- and export-led rebound that is likely to slow before year end," cautions Meny Grauman, an economist with CIBC World Markets Inc.
HOW WILL THE MARKET REACT?
"We still prefer economically-sensitive growth areas," said Tony Genua, senior vice-president of North American equities and portfolio manager for AGF American Class Fund.
In technology and information technology, he continues to like Corning and Apple and in the industrial sector, the fund owns Boeing
"The conditions are favourable for returns not only because earnings are growing, but valuations are low with respect to where interest rates are," Mr. Genua said. "Earnings growth will be more than sufficient to fuel capital growth," he said. There is no need for an expansion in the price-to-earnings ratio resulting from low interest rates, he added.
He expects profits for the companies that are included in the S&P 500 will be up 25 per cent during 2010 and that comes at a time when the index on a year-to-date basis is unchanged.
Fears are somewhat allayed about the prospects of a double-dip recession, Mr. Genua said. "I think senior managers of companies are exhibiting cautiousness, and after what we have been through, cautious spending on capex is understandable," he said.
Investors remain cautious but, extremely slowly, they will likely increase their exposure to riskier assets such as stocks as the economy moves from an early rebound phase to a self-sustaining recovery, he said.
Cat:e528746c-3414-401a-b14b-50247e3bdf01Forum:d0fa4e14-88d2-41f9-8a19-896bdff9544b