Durable goods orders jumped 4.4% in July, but June was revised lower to -4.2%. May was down 2.9%.
Excluding transportation, durable goods orders were up 1.5%, following June at -3.3% and May at 0.5%.
According to Bloomberg Econoday, this “definitely shows signs of life“.
The factory sector, after a frustrating first half of the year, is now definitely showing life. Durable goods orders jumped 4.4 percent in July in a headline gain exaggerated by a swing higher for commercial aircraft but including gains across most readings. Excluding the gain for aircraft and no change for autos, orders rose a very sizable 1.5 percent. And the strength includes core capital goods where orders jumped 1.6 percent to show new demand for business equipment and machinery.
Though the gain for new orders points to future strength for shipments, shipment data for July are soft. Total shipments rose only 0.2 percent in the month with core capital goods shipments, which are an input into the nonresidential investment component of the GDP report, down 0.4 percent to get the third-quarter off to a slow start. And immediate negatives for tomorrow’s second estimate of second-quarter GDP are incremental downward revisions to core capital goods shipments in June and May, now at minus 0.5 and minus 0.7 percent.
Unfilled orders are also a concern in the report, down 0.1 percent in July on top of June’s very steep 0.9 percent decline. Lack of unfilled orders is not only a negative for production but also for employment. On the plus side, inventories broke a long run of contraction with a 0.3 percent rise and are still very lean with the inventory-to-shipments ratio unchanged at 1.64.
Turning back to new orders, other areas of monthly strength include both primary and fabricated metals, electrical equipment, and defense aircraft. A general trend reading underscoring the report’s strength is the year-on-year new order rate for ex-transportation, now at only minus 0.6 percent vs minus 3.4 percent in June.
New orders in this report together with last week’s strong showing for manufacturing in the industrial production report point to second-half possibilities for the factory sector and its contribution to the nation’s growth.
This writer would find signs of life on the moon if given the chance.
Every uptick in any report purportedly shows “signs of life”. Moreover, the bounce back was actually widely expected. The consensus estimate was for a reading of 3.7%. But June was revised lower by 0.2 percentage points and last month May was revised 0.6 percentage points lower to 2.8% from 2.6% and today it sits at -2.9%.
Every bounce could be one that lasts. Will this be the one?
The big jump was in transportation orders, up 10.5%. But last month transportation was down 11.4%. In May, transportation was down 7.1%. It’s important to note that transportation orders have suffered significant cancellation requests recently.
So, are there a sign of life or is this just another round of order rebalancing skewed from one month to another?
Mike “Mish” Shedlock