Durable Goods Orders Fade

For those of you looking for green shoots this is not good news. After two months of improvement new orders for durable goods slid back by 2.5% in June to a total of $158.6 billion.

The slippage returns durable goods orders to a year long downward trend: they are off 26.7% year-on-year. Shipments of durable goods have also been in steady decline, they are down 19.5% over the past year and have now fallen for eleven straight months – something that has never happened before in this data series.

What does this mean?

Usually durable goods orders are a sign of future growth: manufacturers stock up on heavy equipment and other big ticket items covered in this series prior to expanding production. That’s why the last two months, where orders rose for the first time in several months, were greeted so enthusiastically as indicating a fall or winter recovery. The data includes some ‘choppy’ statistics: defense spending and transportation are both big contributors to the overall total of orders. By their very nature both can distort the underlying trend, which is why the Census Bureau, the government department responsible for publishing the data, also reports on new orders excluding them. As an example of the distortion: the data for all new orders, but excluding transportation, rose 1.1% in June [compared with the overall decline of 2.5%]. There’s not too much joy in this, though, since over the past twelve months even this more limited data series has seen a decline of 23.4%.

As I keep repeating: one month is not a trend. We will have to watch whether this drop is repeated when July’s data is published.

Meanwhile I think it’s fair to conclude from today’s release that whatever trend there is does not support an argument for rapid recovery any time soon. It may be true that the rate of decline is easing: we will see the GDP figures for the second quarter later this week, but at the moment that does not translate into much of a recovery.

There is a lot of work yet to do.