Small gain in durable goods orders

June 27, 2024

May durable goods orders edged 0.1% higher, beating market expectations. The consensus forecast was for a drop of 0.1%. April durable goods orders were revised down to 0.2% from 0.7%. Taking these two months into account, the May print is not as positive as it first appears. Excluding transportation, durable goods orders contracted 0.1%.

Transportation orders increased 0.6% following a disappointing 0.1% decline in April. Civilian aircraft orders were once again a drag with consecutive declines. Boeing reported orders for four planes in May after an already weak seven planes in April; these orders followed a strong 113 plane orders in March. Defense aircraft led the sector with a 22.6% jump in May. Motor vehicles and parts climbed 0.7%, increasing for the seventh consecutive month. Average transaction prices for new vehicles were flat from last month, according to Cox Automotive. Still high interest rates paired with cumulative price increases of greater than 20% since the end of 2019 make affordability an issue for some consumers.

Computer orders rose 1.3%, while communications equipment dipped 1.6%. Both sectors were coming off of a solid April readout. Spending on generative artificial intelligence (GenAI) and industrial policies has been driving a general expansion of the broader electronic products category, which has shown positive growth on a year-over-year basis since October 2021. There were few bright spots for orders outside of these major sectors.

May shipments contracted 0.3% after three months of expansion. The decline was broad-based with only computers and motor vehicle shipments growing. Nondefense capital goods shipments excluding aircraft, a proxy for nonresidential investment, fell 0.5% in May. They came in below our forecast of 3.6% second quarter annualized growth, after a robust 3.3% in the first quarter and could indicate an earlier-than-expected pullback in investment.

Durable goods inventories expanded a modest 0.3% as businesses seek to rebuild their stocks following a drawdown in the first quarter. This is consistent with our forecast. Most sectors gained inventories but a few key areas, computers and motor vehicles, continue to experience inventory draining.

Capital goods orders excluding defense and aircraft, or core orders, which serves as a representation of anticipated business spending in the second half of the year, fell 0.6% in May. That continues the back-and-forth between positive and negative prints since the start of the year. It also may indicate the uncertainty businesses feel about the upcoming November presidential election, and potential regulatory and trade policy changes, as well as the current interest rate environment. In a recent KPMG survey, 62% of CEOs said their companies would delay major capital investments and M&A until after the election.