New Durable Orders Weaken, but Business Investment Remains on Solid Ground

The advance durable goods report in June was disappointing from a headline perspective. Declines in new orders accelerated from -0.8% in May to -1.0% in June. The Briefing.com consensus estimate called for a 1.0% increase in new orders.

Fortunately, not all of the news was bad.

Demand for business investment remains steady as new orders for nondefense business capital excluding aircraft rose 0.6% on top of a 4.6% increase in May. Shipments, which lead directly to GDP growth, were up a relatively minor 0.2%, yet that followed a 1.5% increase in the prior month.

As long as demand expectations remain positive, firms may continue to upgrade their equipment through the rest of the year.

Part of the missed expectations may be blamed on aircraft orders. Boeing reported strong orders growth in June, which should have acted as a positive factor on nondefense aircraft orders. However, most of these orders came at the end of the month and it seems very likely that these orders will not be counted until July's report. Therefore, we may see a bounce next month just based upon the extra orders being delayed in the data.

The transportation sector cannot be completely blamed, however, for the weak growth numbers. New orders excluding transportation fell 0.6% in June after rising 1.2% in May. The consensus expected a positive 0.6% growth rate.

Machinery orders were down 0.7%, yet that followed an 11.1% increase in May. Separately, new orders for motor vehicles and parts jumped 2.5% on the heels of a 1.7% increase in May.