U.S. advanced durable goods orders recover strongly in June

Advanced durable goods in the U.S. recovered solidly in June, led by aircraft orders and strength in capital goods orders. In all, durable goods orders rose 2 percent sequentially after declines of 2.3 percent sequentially in May and 2.8 percent sequentially in June. The June reading came in well above expectations.

Orders of non-defence aircraft rose 75.5 percent sequentially after very large falls in the preceding two months. New orders for motor vehicles and parts also saw a strong rise of 3.1 percent in June on the heels of weaker readings. Nevertheless, orders for non-transportation durables also indicated a solid gain in June, moving up 1.2 percent sequentially after having registered an anaemic net gain in April and May.

Today’s estimates seemingly put manufacturing activity on a stronger footing entering the third quarter and are in line with diminished downside risks for this sector in the months ahead. June’s estimates likely overstate the underlying strength of durable goods manufacturing. New orders estimates are subject to significant month-on-month volatility that could make it difficult to disentangle noise from signal.

On a three-month saar basis, ex-transportation orders rose 6.1 percent in June, the strongest rise since last June, when the U.S. economy was advancing from the tailwind of a double dose of fiscal stimulus and from stronger global demand.

Core capital goods orders came above expectations. Much of the strength in ex-transportation orders was in capital goods categories. Orders of nondefense capital goods excluding aircraft rose 1.9 percent sequentially in June after having moved down, on balance in April and May. June’s rise was the largest in the category since February 2018 and vastly exceeded consensus expectations of 0.2 percent.

“Today's estimates place the level of core capital goods shipments roughly in line with the level of orders, which is generally a neutral sign for capital goods shipments in the coming months”, said Barclays.

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