The stark decline in durable goods orders in July was not wholly unexpected as some payback for recent strength in aircraft and defense spending was in order, but underlying details were also disappointing.
Durables Sink on Broad-Based Weakness
Durable goods orders sank 7.3 percent in July, which was a more substantial decline than markets anticipated. Some payback was to be expected after orders posted impressive gains of more than three percent in each of the previous three months. The most volatile components of the report had been leading the recent surge. Between April and June, nondefense aircraft orders and defense orders were up 124 percent and 58 percent, respectively. Boeing already reported nearly a 70 percent drop in the number of aircraft orders, so today’s 52 percent decline in the value of nondefense aircraft orders came as little surprise. Defense orders also corrected from the recent run of gains, declining 22 percent.
Markets were expecting an ugly headline number, but the details of this report made it more unpleasant. Excluding transportation, orders fell 0.6 percent versus an expected gain of 0.5 percent. Weakness was widespread across sub-sectors, with orders for computers and electronics and electrical equipment falling and orders for machinery and primary metals flat. Orders for vehicles and parts offset some weakness, rising 0.5 percent, but are well 0ff the pace seen earlier in the year, as auto sales and production have cooled over the past couple of months. Core capital goods orders, which exclude aircraft and defense orders, also disappointed, slipping 3.3 percent. This bucks the trend of fairly solid gains over the past four months. Even after today’s drop, however, core orders are up 9.1 percent over the past year, suggesting factory activity is not completely falling off the rails.
Read the full report: Economic Research
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