Turning our eyes away from Brexit for a moment, durable goods orders sank 2.2% vs. the Bloomberg Econoday economist’s expectation of -0.7%.

One economist actually guessed +4.9%.


May proved to be a generally weak month for the factory sector. Minus signs spread across the durable goods report with total new orders down a very sizable 2.2 percent and ex-transportation orders, which exclude aircraft and vehicles, down 0.3 percent.

The worst news comes from capital goods, a sector where weakness points to weakness in business investment and ultimately the nation’s productivity. Orders for core capital goods fell 0.7 percent in the month while shipments, which are inputs into the nonresidential investment component of GDP, fell 0.5 percent.

Overall shipments also fell, down 0.2 percent with inventories in thankful contraction, down 0.3 percent and holding the inventory-to-shipments ratio unchanged at 1.65. Unfilled orders, which outside of April’s 0.6 percent gain have not been strong, rose a modest 0.2 percent in May.

Vehicles, like they were in the industrial production report, were once again very weak with orders down 2.8 percent and shipments down 3.4 percent. Vehicle sales, however, have been solid and point to a rebound for the related factory data. Orders and shipments for commercial aircraft remain solid with orders in May up an unusually tame 1.0 percent. Machinery orders, at the heart of the capital goods group, are down for a second month with both primary and fabricated metals showing order declines.

The decline in capital goods is certain to pull back second-quarter GDP estimates which, in the 2 percent range, aren’t that strong to begin with. The dollar’s decline this year has not done much to lift exports or the factory sector which going into Brexit, and the ensuing spike in the dollar, was simply flat.

Recent History

Durable orders have been up and down with forecasts no less so. The range for May orders is between a 2.5 percent drop and a 4.9 percent surge with the ex-transportation range also wide, at minus 0.8 to plus 0.5 percent. Monthly swings aside, trends in this report have been flat with capital goods, however, turning lower in what is a negative indication for business investment.

Capital Goods

Core Capital Goods 2016-06-24

Above table from the Census Department Advance Report on Durable Goods.

Mike “Mish” Shedlock