Aircraft orders lift durable goods orders

Durable goods orders surged by 4.7% in June, scoring the highest increase since a pandemic-induced rebound in July 2020 when they rose by 9.8%. June’s increase follows an upwardly revised 2% rise in May (previously 1.8%) and handily beat expectations for a 1.3% gain. 

Not only was the sequential month-to-month gain striking, but in level terms, June’s orders of $302.5 billion represents a new record high for this data series (since 1992) and eclipses the previous high in July 2014, which was likely influenced by aircraft orders.

Nondefense aircraft orders soared by 69% in June as Boeing was a major beneficiary of the Paris Air Show held last month. Boeing announced new orders for 304 commercial aircraft, a multiple of more than four times the 69 orders booked in May.  One South Asian carrier alone accounted for 290 plane orders. June represented the highest number of airplane orders in 10 years since July 2014. 

Even when you discount the upward surge in commercial aircraft orders, durable goods orders ex-transportation rose by a healthy 0.6% in June after a similar sized 0.7% rise in May.  That compares to an average of no growth per month over the previous 12 months. Orders for motor vehicles and parts contributed positively in June, adding 0.3%. 

The largest gains in June came from orders for computers and electronics, plus electrical equipment, each rising 1.5%. Thank chatGPT and the surge in construction for manufacturing facilities associated with the Inflation Reduction Act. Fabricated metals and primary metals orders rose 1.3% and 0.9%, respectively. Machinery orders posted a slight increase of 0.1%.

Even business leaders are seeing a little more optimism than a few quarters ago based on the trend improvement in core capital goods orders. On an annualized basis for the quarter, core capital goods orders which exclude aircraft rose 2.6% in the second quarter, an improvement from 2.3% in the first quarter and –1.0% in the fourth quarter of 2022.  The level of core capital good- reached a new high of $74.1 billion in June.  The just-reported second quarter GDP data showed business spending up 7.7% on a seasonally adjusted annual rate basis from 0.6% in the previous quarter.