Durable Goods Orders Rode the Transportation Sector in July

Durable goods orders surged in July on strong demand for transportation equipment, while business spending declined. According to a Commerce Department report Wednesday, new orders for long-lasting U.S. manufactured goods climbed 4% last month after declining 1.3% in June. Economists had expect a more modest 2% gain in July. Durable goods orders are highly volatile, and a good July won’t necessarily make for a good August, but the news has at least partially allayed fears that the economy is slipping back into recession, engendered by the recent onslaught of weak economic reports.

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While the data is certainly a positive sign, last month’s increase was almost exclusively based on transportation equipment bookings, which climbed 14.6% in July, with aircraft orders surging 43.4% after declining 24% in June. Motor vehicle orders climbed 11.5%. When excluding transportation, orders only rose 0.7% in July, and gained 0.6% in June. Non-defense capital goods orders excluding aircraft fell 1.5% in July, more than the 1% decline expected by analysts and the 0.6% rise in June. Orders for machinery, computers, and electronic products fell, though primary metals orders rose.

Business spending declined in July, but the category normally weakens in the first month of each quarter due to an incomplete seasonal adjustment of the power equipment sub-component, so last month’s data is not a clear indicator of any real decline in manufacturing, which has been the biggest supporter in the nation’s recovery from recession. Still, plunging stock markets have hurt both consumer confidence and big business, and the Regional Federal Reserve’s factory surveys have been significantly weaker so far in August.