Tariff pause ignites surge in manufacturing

June 26, 2025

May durable goods orders surged 16.4%, rebounding from a 6.6% drop in April. May chalked up the largest increase since July 2014 and handily beat the consensus expectation for an 8.5% rise. A jump in aircraft orders boosted the headline number. Even without that, ex-transportation orders rose 0.5%, a healthy outcome despite the continuing uncertainty of tariffs and where they will ultimately land.

Transportation orders surged 48.3%, fueled by a 231% rise in nondefense aircraft orders. Boeing booked 303 new plane orders in May versus just eight in April. Orders for motor vehicles and parts also showed growth, rising 0.6% after a 3.2% drop in April.

Away from transportation orders, the report showed broad-based gains. Computer and electronic products orders rose 1.5%, aided by data center buildouts associated with gen AI. Electrical equipment orders rose 0.8% for the same reason due to the required connectivity to the grid to power AI applications. Fabricated metals orders rose 0.7%, machinery orders increased 0.3% and primary metals advanced 0.1%.

Defense equipment orders rose strongly, increasing by 31.6%, the largest rise in three years, after a 14.9% increase in April. Defense orders are likely benefiting from a tailwind, given the geopolitical situation in the Middle East.

Orders for nondefense capital goods excluding aircraft, a proxy for business capital spending on equipment, rose 1.7% after a 1.4% drop in April, putting the investment outlook on a better footing. A June survey of manufacturing executives showed better sentiment. S&P Global’s manufacturing purchasing managers' index (PMI) came in at 52.0 in June, the same reading as in May. Above 50 readings indicate expanding activity.

Core capital goods shipments rose 0.5% after no change in April. These data feed into the calculation of business fixed investment and suggest the second quarter could be stronger than the 3% annualized contraction we were forecasting for the second quarter.

While no change in overall business fixed investment for the second quarter might appear to be a better outcome than a contraction, it is still no growth after all. Tariff uncertainty persists so the stagflationary scenario we see unfolding is expected to pose a considerable challenge to both business and household spending in the second half of 2025.