Orders placed with US factories for durable goods rose unexpectedly in June, fueled by a surge in defense aircraft as well as sustained demand for equipment.

Bookings for durable goods -- items meant to last at least three years -- increased 1.9% in June after a 0.8% advance a month earlier, Commerce Department figures showed Wednesday. However, the figures aren’t adjusted for inflation.

The value of core capital goods orders, a proxy for investment in equipment that excludes aircraft and military hardware, rose 0.5% for a second month. Shipments also advanced.

Separate data out Wednesday showed the US merchandise trade deficit narrowed for a third month in June, reflecting both an increase in exports and a drop in imports. The report also showed firm advances in inventories at retailers and wholesalers.

These data reduce “the likelihood that Q2 GDP will print negative, although we expect it’ll still be low due to softer consumption,” Alex Pelle, US economist at Mizuho Financial Group Inc., said in a note.

Core capital goods shipments, a figure that is used to help calculate equipment investment in the government’s gross domestic product report, increased 0.7% in June after a 1% surge a month earlier. The government will release its initial estimate of second-quarter GDP on Thursday.

The median estimates in a Bloomberg survey called for a 0.4% decrease in overall orders. Core equipment bookings were projected to rise 0.2%.

The pickup in orders suggests that firms are continuing to invest despite rising borrowing costs and greater economic uncertainty. That said, the rise in the value of orders at least partly reflects higher prices and indicates the monthly gain overstates the strength of demand.

Cars and Computers
Orders increased in June for motor vehicles, computers and electronic products, and fabricated metals. Bookings for primary metals, machinery and communications equipment fell.

Defense aircraft orders, which are volatile month to month, surged more than 80% in June.

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