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April Durable Goods Orders Add to Emerging Bullish View on Economy

NEW YORK (TheStreet) -- After a bump up in March, manufacturing was supposed to slow down in April. But thanks to an increase in transportation-related orders, that didn't happen. And for a change, the angel is in the details.

Orders for durable goods jumped 0.8% in April, handily beating forecasts for a 0.8% decline. On top of that, March figures were revised upward to show a 3.6% gain in the month when the Northeast and Midwest were just beginning to thaw out. The government initially reported a 2.5% March gain.

The best parts of the numbers are what people ordered more of, and that unfilled orders rose a bit more than orders as a whole, pointing to nice gains ahead as those orders get filled.

Computer orders jumped 7%, and orders for nondefense capital goods rose 3%. Machinery orders dipped 1.4% but were so strong earlier in the year that they're still up 7%. Categories like these are essential to making productivity increase faster -- a prerequisite to wage gains the market increasingly wants to see. They would make the Federal Reserve and Janet Yellen happy as well. After all, wages are the issue Yellen has made her own since taking over the central bank this year.

Unfilled orders in general, excluding the volatile defense industry, are up 11.6% so far this year, including a 5.9% gain when orders related to transportation are also excluded. The category numbers for unfilled orders are filled with double digits: an 11.8% gain in primary metals, 19.7% in communications equipment, 14.9% in civilian aircraft.

Business appears to be making more of the investment the economy has lacked for years. And that is backed up by a series of regional manufacturing reports in recent weeks that beat expectations.

The data point to a further pickup in second-quarter investment, Regions Financial chief economist Richard Moody said. Part of the growth in orders is coming from abroad, he said, noting that the Institute of Supply Management's reports of new export orders have pointed to growth for 17 straight months.  Unexpectedly strong defense orders suggest that federal spending may actually add to second-quarter growth, reversing D.C.'s drag on the economy, rather than simply reducing it as the markets have expected.

"This should continue to provide support for U.S. producers of capital goods over coming months," he said. 

The data point to little immediate change in Federal Reserve policy, which is already based on an assumption of a moderate midyear pickup in growth. But the next things to watch for are manufacturing surveys from Federal Reserve Banks in Richmond and Dallas later Tuesday.

Those surveys will either confirm -- or maybe contradict -- the emerging bullish picture. But for now, the expectation that May's jobs report will be strong is reinforced by more orders for people to make stuff.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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