by Mish

Econoday economists expected a 3.5% rise. Excluding transportation, however, durable goods orders only rose 0.2% vs the Econoday consensus of 0.4%. Rounding out the report, a commerce department revision took May from -1.1% to -0.1%.

Aircraft orders don’t dribble out day by day, they come in big monthly batches and an especially big one in June that masks otherwise mixed results. Total orders surged 6.5 percent to top Econoday’s consensus for a 3.5 percent gain and high estimate for 6.0 percent. But when excluding transportation equipment that includes a 131 percent surge in civilian aircraft, orders could manage only a 0.2 percent gain which is below the 0.4 percent consensus and just making the low estimate.
But tipping the balance back in favor of strength is a 1 point upward revision to May where the decline is now only 0.1 percent. The ex-transportation reading gets a 1/2 point upward revision to a 0.6 percent gain with core capital goods (nondefense ex-aircraft) really showing strength, now at plus 0.7 percent vs a small initially reported decline.
But the readings for June aren’t that great with core capital goods moving back into the negative column at minus 0.1 percent. Other areas of weakness include motor vehicles which have been suffering and where the June decline is a sizable 0.6 percent.
For the second-quarter as a whole, however, June’s non-aircraft weakness is offset by the big gains in May. And specifically for Friday’s GDP report, a 0.4 percent June rise in inventories will be a solid plus with a 0.2 percent rise for shipments of core capital goods, that follows 0.4 and 0.2 percent gains in May and April, a modest plus.
But for forward momentum, the weakness in June doesn’t point to building strength for July. Durable orders have not been consistently strong this year though there are more favorable aspects to today’s report than unfavorable with the second-half outlook for the up-and-down factory sector now a bit more upbeat.

Durable Goods Details

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Detail Notes

  1. The above image is condensed from a Census Department table.
  2. New orders for civilian aircraft distorted the report
  3. New orders excluding transportation are about .1% each month on average
  4. Shipments are a plus for second quarter GDP
  5. The motor vehicle numbers point to an inventory build that is sure to cause problems in the third quarter

Mike “Mish” Shedlock

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