U.S. Durable Goods Orders Rebound Substantially In June

by Ike Obudulu Posted on July 25th, 2019

Washington: A report released by the Commerce Department on Thursday showed a much stronger than expected rebound in new orders for U.S. manufactured durable goods in the month of June, although the report also showed a much steeper than previously reported drop in orders in May.

The Commerce Department said durable goods orders spiked by 2.0 percent in June after plunging by a revised 2.3 percent in May.

Economists had expected durable goods to climb by 0.7 percent compared to the 1.3 percent slump originally reported for the previous month.

The rebound in durable goods orders received a boost from a turnaround in orders for transportation equipment, which surged up by 3.8 percent in June after tumbling by 7.5 percent in May.

Orders for non-defense aircraft and parts soared by 75.5 percent in June after plummeting by 52.2 percent in May, while orders for motor vehicles and parts also showed a significant increase.

Excluding the rebound in orders for transportation equipment, durable goods orders still jumped by 1.2 percent in June after rising by 0.5 percent in May. Ex-transportation orders had been expected to edge up by 0.2 percent.

Orders for machinery and fabricated metal products showed notable increases, while orders for primary metals and computers and electronic products also moved to the upside.

The report also said orders for non-defense capital goods excluding aircraft, an indicator of business spending, shot up by 1.9 percent in June after edging up by 0.3 percent in May,

“Nevertheless, with the incoming global data still deteriorating and domestic capacity utilization falling, we still expect overall investment to remain weak in the second half of the year,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

Shipments in the same category, which is the source data for equipment investment in GDP, climbed by 0.6 percent in June following a 0.5 percent increase in May.

The Manufacturers’ Shipments, Inventories, and Orders (M3) survey or the Durable Goods Orders Report

The Manufacturers’ Shipments, Inventories, and Orders (M3) survey or the Durable Goods Orders Report provides broad-based, monthly statistical data on economic conditions in the domestic manufacturing sector. The survey measures current industrial activity – change in the total value of new purchase orders placed with manufacturers for durable goods – and provides an indication of future business trends.

The data can be volatile and revisions via the Factory Orders report released about a week later are not uncommon. Moving averages should be used to identify long-term trends.

Durable goods are generally defined as higher-priced capital goods orders with a useful life of three years or more

Durable goods are defined as hard products (capital goods) having a life expectancy of three years or more years, such as automobiles, computers, appliances, airplanes, semiconductor equipment and turbines.

The report is issued monthly by the Census Bureau of the U.S. Department of Commerce.

‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.  A weak durable goods report will also generally lead to a decline on the bond market.

Core Durable Goods Orders Report

Core Durable Goods Orders report measures change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items.

Orders for aircraft are volatile and can severely distort the underlying trend. The Core data is therefore thought to be a better gauge of purchase order trends;

Why Markets Care About Durable Goods Orders Report

It is  a leading indicator of production – rising purchase orders signal that manufacturers will increase activity as they work to fill the orders.

A durable goods report showing an increase in orders is a sign that the economy is trending upwards. This can be a sign of gains in the stock market.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy.

The Durable Goods Report gives more insight into the supply chain than most indicators, and can be especially useful in helping investors get a feel for earnings potential in the most represented industries: machinery, technology, manufacturing and transportation.

It provides forward-looking data such as inventory levels and new business, which count toward future earnings.

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