U.S. durable goods orders fall in July on decline in transportation orders

U.S. durable goods orders dropped in July. The headline figure fell 6.8 percent sequentially in July, as compared with consensus expectations of a drop of 6 percent and the prior month’s rise of 6.4 percent. However, details of the report were widely consistent with expectation. The drop was mainly due to transportation orders that fell 19 percent sequentially, totally reversing the 19 percent rise seen in June.

Within this category, it was the volatile non-defense aircraft orders that led the drop, falling 70.7 percent sequentially after an above-normal rise in June of 129.3 percent. A huge decline in non-defense aircraft orders was expected, and the actual outturn was almost exactly consistent with Barclay’s projection for the category.

However, durable goods orders excluding transportation rose 0.5 percent sequentially. Core capital goods orders rose 0.4 percent. Finally, core capital shipments rose solidly by 1 percent on the month. Both these components are an important input to the BEA’s estimate of equipment investment in GDD. The core data is seen as consistent with further modest improvement in business investment in the third quarter.

While durable goods orders dropped by larger figure in July, the details of the report indicate that most of this fall was driven by volatile components. The categories of core shipments and core goods orders that were used to track equipment investment in the GDP tracking model performed better than what had been expected in prior to the report, noted Barclays. Moreover, manufacturers’ inventories of durable goods were higher than projection.

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