August Durable Goods Orders

Orders for goods expected to last three years or longer plunged in August according to the Census Bureau.  Month-over-month, there were 18.2 percent fewer orders than in July.  August’s collapse follows two consecutive months of gains.  Including the poor showing in the most recent tally, durable goods orders are still 8.1 percent higher on a year-to-date basis versus 2013.

For those regular readers, you may recall Atlas wrote that we expected a “substantial decline” in the August orders.  A large airplane manufacturer received 324 order for new planes in July and only 107 in August.  Planes are expensive, so a decline in their orders makes a powerful impact on the headline number, despite the obvious fact that additional orders had been received.  However, if another layer of this onion is peeled back, durable goods look rather constructive.

Atlas pays attention to something known as “core” durable goods which we see as a proxy for business confidence.  This subset strips out aircraft and defense orders from businesses’ capital goods orders.  After falling 0.2 percent in July, it bounced back by 0.6 percent in August.  For some added perspective on July’s downtick, it followed a huge 5.4 percent jump in June’s core orders.  To us, it appears firms continue to feel confident enough in their outlook for the economy to keep making additional investments in equipment expected to remain in service for years.

Despite being known primarily as a service economy, America’s market place is being helped by the nation’s physical output.  Industrial production was strong last month, and the orders included in this report will mostly become output in the months ahead.  From this vantage point, the economic expansion will continue for the foreseeable future.         (by C. Cox)