Durable goods orders surge almost 10%

August 26, 2024

July durable goods orders jumped 9.9%, the largest gain since July 2020’s 11.5% increase. A surge in aircraft orders was behind the astonishing rise in the headline index, which doubled the consensus expectation for a 5% rise. However, when we look below the surface, the orders data were underwhelming. Ex-transportation, durable goods orders declined 0.2% in July. Forward-looking orders seem to signify caution due to election uncertainty.

Transportation orders jumped 34.8% in July on the back of a $27.6 billion increase in orders for nondefense aircraft and parts. The increase in civilian aircraft orders was the largest in 10 years. Boeing received 72 new plane orders in July versus 14 in June.

Another key component of transportation orders, vehicle orders fell for the second consecutive month, down 2.6% in July after falling 0.7% in June. Detroit automakers have recently announced plans to reduce their investment in electric vehicles as consumers increasingly choose hybrids as their vehicles of choice. Re-tooling plants takes time; recent summer shutdowns were longer than anticipated. Furthermore, the high financing interest rate environment continues to impact affordability, reducing the pool of available buyers and pushing overall vehicle inventories higher and adding a reason to temper future orders.

Other industries posted weak results in July. Primary metals orders fell 0.9%, computer electronics orders declined 0.7% while electrical equipment orders were down 0.4%. Machinery orders were unchanged as fabricated metals orders rose 0.2%.

Capital goods orders excluding defense and aircraft, or core orders, which represent business spending plans for the latter half of this year, declined 0.1% in July. The August Purchasing Managers' Index report reflected angst among manufacturing executives about election uncertainty and a reason to delay investment plans until after the election.

Nondefense capital goods shipments excluding aircraft, a proxy for nonresidential investment in the current quarter, fell 0.4% in July. Such an outcome would usually send GDP estimates lower in the third quarter, but civilian aircraft was an influencer in the opposing direction. Unexpected strength in shipments of civilian aircraft more than offset unexpected weakness in shipments of core capital goods, which raised our third quarter forecast of equipment spending and nudged our GDP growth estimate a tenth higher to 2.0%.