Durable goods fall in June, Capital goods rise

Total durable goods orders were weaker than expectations, falling 1.0% in June. Excluding transportation, durable goods orders fell 0.6% in June. Nondefense capital goods orders excluding aircraft rose 0.6% in June (up 25.1% at an annual rate in the second quarter), while shipments of these capital goods increased 0.2% in the month (up 15.8% at an annual rate in the second quarter).


Given the volatility in these data, the decline in the headline orders data is not sufficient to suggest a significant pullback in manufacturing activity, although there is support for the view that manufacturing growth is slowing (which is quite a different proposition than the claim that the economy is falling back into recession). We are particularly encouraged by the continued expansion in capital goods orders and shipments, which suggests that not only did equipment spending likely add significantly to second-quarter growth but also that momentum in capital goods is picking up. Combined with earnings reports that suggest continued gains in profits, rising momentum in capital goods orders and backlogs is an encouraging sign for growth in the second half of the year.


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