Core orders strongest since January

September 27, 2023

August durable goods orders rose 0.2%, soundly beating expectations for a 0.5% decline. July orders were revised to -5.6% from -5.2%.

The reshoring initiative continues to buoy orders. Orders for electrical equipment rose 1.1% in August, followed by gains in machinery orders and fabricated metals orders, each up 0.5%. Credits associated with the Inflation Reduction Act are spurring investment in electric vehicle charging and manufacturing plant construction. Orders for computers and electronics rose 0.3% as companies push into GenAI. Orders for computer products alone jumped 2.6%, the largest increase in five months.

Some categories fell in August but they numbered in the few. Transportation orders fell 0.2%, pulled down by a 15.9% decline in civilian aircraft orders. Boeing booked 45 plane orders in August, down from 52 in July. Orders for motor vehicles and parts rose 0.3%, a positive showing which could be fleeting. The continuing UAW strike, which has now spread to 38 locations in 20 states, could sink motor vehicle orders into the red over the coming months. October would likely be the first month to see an impact, should the work stoppage persist.

Excluding transportation, durable goods orders rose 0.4% in August. The other key category that was down in August was primary metals orders, -0.6%.  Nondefense capital goods orders excluding aircraft rose 0.9%, highest since January 2023, after falling 0.4% in July. This component is an indicator of future business spending and reflects subsidies for chip plants and ongoing infrastructure spending. State and local governments have to spend their infrastructure dollars by the end of the next fiscal year. Nondefense capital goods shipments excluding aircraft rose 0.7% in August, the highest since the start of the year, after falling 0.3% in July. This is an input into actual GDP for the third quarter and supports the narrative that the economy accelerated over the summer.