US executives buck gloomy trend and confound experts with bullish outlook

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The Independent Online

While all eyes have been on the debt-burdened US consumer and the moribund domestic housing market, many American businesses are continuing to operate in a bullish fashion.

Figures released yesterday showed durable goods orders in July rose strongly, suggesting executives are still confident enough in the outlook for their businesses that they are investing in expensive new equipment, such as machinery, metals and motor cars.

The 1.3 per cent jump in July confounded economists, who were expecting no change or a small decline, and came on top of a June rise of 1.3 per cent.

The strength of businesses not exposed to the US consumer – and particularly those businesses which export products overseas – has stayed a bright spot, even as the credit crisis has been causing misery elsewhere in the US economy. The weak dollar has helped exporters stay competitive. As the latest estimate of second-quarter GDP will show this morning, the US economy has continued to grow, despite predictions of a recession.

While US banks are tightening their lending conditions for businesses, executives are still finding enough cash from loans and from profits to invest.

Ian Shepherdson, chief US economist at High Frequency Economics in New York, said: "We think it likely that most of the increase in capital spending implied by the durable goods data is being undertaken by companies benefiting from the export boom. The domestic economy remains very weak indeed. The risk must be that in time the combination of slowing global growth and a stronger dollar crimps exports, but for now they are the lifeline."

Transportation orders rose 3.1 per cent in July, the largest gain since February, on a 28 per cent rise in civilian aircraft orders. Orders for machinery and primary and fabricated metals rose, while demand for computers and appliances waned. Even when volatile transportation orders were stripped out, demand for durables rose 0.7 per cent.

The forecast-busting figures turned around sentiment in the equity markets, and the Dow Jones Industrial Average was up more than 100 points by lunchtime in New York. In London, the FTSE 100 closed up 57.4 points at 5,528.1. There was also a cautiously optimistic speech yesterday from Federal Reserve Bank of Atlanta president Dennis Lockhart, who next year will become a voting member of the Federal Open Market Committee, which sets US rates. Mr Lockhart said the impact on inflation from recent high commodities prices was likely to be temporary, rather than persistent.

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