Durable goods hold onto recent gains
Today’s orders data supports the view that a soft landing is still achievable.
September 26, 2024
August durable goods orders were unchanged after a near 10% surge in July. The flat reading was better relative to expectations as the consensus was for a 2.6% drop.
Civilian aircraft orders fell 7.5%, providing the largest drag in the report and contributing to the 0.8% drop in overall transportation and equipment orders. Boeing booked orders for 22 aircraft in August, down from 72 in July. Still, there was a pocket of strength in the transportation category as motor vehicles and parts orders rose 0.2%, showing a bounce-back from the 3.5% loss in July. Excluding the drag from transportation orders, durable goods orders rose 0.5% in August, a solid outcome.
Outside of transportation, the August report showed broad-based strength. Orders for electrical equipment surged 1.9%, the largest increase since January 2023. The US Energy Information Administration projects record power consumption in 2024 and 2025, driven by rising demand from generative AI and data centers as well as household and business needs driven by climate change.
Fabricated metals orders rose 0.6% and machinery orders increased 0.5%, following the pick-up in motor vehicle orders. Primary metals orders rose 0.2%.
Core orders, which represent capital goods orders excluding defense and aircraft and are a proxy for future business spending, rose 0.2% in August, outpacing the consensus estimate for a 0.1% increase. While the September manufacturing purchasing managers' index (PMI) from S&P Global remained weak at 47.0 and indicative of contractionary conditions in the industrial sector, the August orders data showed that business leaders are trying to look through the uncertainty associated with the November US elections and escalating geopolitical tensions.
Nondefense capital goods shipments excluding aircraft, which serve as a proxy for nonresidential investment spending in the current quarter, rose 0.1% in August after a 0.4% drop in July. We project 4% growth in business investment in the third quarter on a seasonally adjusted, annualized basis. This compared with a revised 2.3% growth in the second quarter and 6.5% growth in the first quarter, reflecting revisions associated with annual updates to GDP and related data that were released today
Our expectation remains for another one-half percentage point cut in short-term interest rates before the end of the year.
Ken Kim, KPMG Senior Economist
Bottom Line
Looking ahead, every economic report that refutes or supports the soft-landing thesis for the economy will draw scrutiny. The Fed's kickoff of the easing cycle with a one-half percent cut could defrost the industrial sector which has been combatting flat to sluggish growth for the better part of two years due to a restrictive interest rate environment. Today’s orders data supports the view that a soft landing is still achievable. Our expectation remains for another one-half percentage point cut in short-term interest rates before the end of the year.
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