Orders for Durable Goods in June

Durable goods orders (items expected to last 3 years or longer) improved during the final month of the second quarter after a large decline in May.  Orders increased by 0.7 percent in June according to the Census Bureau after dropping 1.0 percent in the prior month and have been up in four out of the last five months, including an uptick of 0.9 percent in April.

Capital spending by firms increased in the period after falling in April and May.  Atlas tracks the nondefense capital goods orders excluding aircraft (core durable goods) because we see it as a proxy for business confidence since it removes government outlays and volatile aircraft orders.  When firms feel better about their prospects, they are more willing to spend money on capital equipment.  In aggregate, companies increased their spending by 1.4 percent in June which contributed to the 1.6 percent quarterly improvement versus the first three months of the year.  This should be helpful for gross domestic product (GDP) in the coming quarters because business investment is the second largest component of our nation’s output.

Shipments of durable goods give some insight into the strength of the economy.  From April through June, shipments grew by 1.3 percent, beating the first quarter tally which was virtually flat.  Shipments of core durable goods grew by 1.0 percent, accelerating from the first quarter’s growth of 0.6 percent. An uptick in this segment of the economy undoubtedly helped GDP for the second quarter, but weakness in other segments (notably personal consumption) held back America’s output.               (by C. Cox)