By Mark Pender

NEW YORK (MNI) – MNI’s U.S. capital goods indicator rose seven
tenths in the July 27 period to a 46.0 level that still, however,
remains well below 50 to indicate sizable contraction in year-on-year
business activity, according to the results of MNI’s weekly survey
released Monday.

Sales are +1.8% year-on-year with foreign exchange a central and
increasing headwind, shaving three percentage points from sales.

But income is a plus, at +5% for the first positive reading since
mid-May. The period’s sample size is 384 companies.

MNI’s data point to modest slowing in sequential sales growth for
the third quarter. Second-quarter shipments of nondefense capital goods
rose a sequential 1.3%.

Due in large part to foreign exchange, a wave of companies are
trimming down guidance for third- and fourth-quarter growth.

Some double-digit foreign exchange effects are beginning to appear
and some in the sample are warning that year-on-year sales growth,
because of exchange effects, may turn negative by year end.

Resilience is centered squarely in the North American market amid
increasing expectations that contraction in European demand will not
ease and that seasonal slowing in Europe may prove especially pronounced
this summer.

Another major concern is that slowing in Asian demand will extend
through the second half. Softness in China and softness in India are
repeatedly cited.

Many in the sample are initiating early cost-cutting actions though
layoffs are very limited so far.

Lower input costs are a positive for the sample and are expected to
provide a second-half tailwind.

Aerospace and auto-related demand remain solid while comments out
of the electronics sector are mostly negative with many chip-machinery
makers reporting extending weakness in customer spending plans.

Comments on medical-related demand are less upbeat while many
comments on commercial construction no longer point to continued
improvement.

These comments are from electrical wire maker Encore Wire (WIRE):
“There are signs of bright spots around the country and talk of some
major projects, but for the most part we are still in the trough. Major
projects are discussed but then get delayed due to all the uncertainties
surrounding the global economy and the U.S. economy and political
environment. The good news is that our volumes are not trending
downward.”

Editor’s Note: MNI compiles its capital goods index based on a
weekly sample of company news and data.

** MNI New York Bureau: 212-669-6430 **

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