Strong demand for autos and aircraft drove orders for durable goods sharply and broadly higher in July, with that key, albeit very volatile, series gaining 4.0%, to $201.45 billion, for the month. That was twice the gain widely forecast. The increase also was the largest since March, and it helped to counter a dour trend of recent economic news, including a disappointing report issued yesterday on new home sales for July.
The strong July showing also helped to offset a 1.3% decline in such orders in June. If we back out the defense component from the overall mix, we find that demand for durables was even a bit stronger, with orders increasing by 4.8% last month. However, save for transportation orders, which were boosted by autos and aircraft, orders were up just 0.7% for the month.
(Durable goods are long-lasting manufactured goods, such as washing machines, television sets, autos, and airplanes that are expected to last at least three years.) The report is issued by the U.S. Department of Commerce.
Meanwhile, one disquieting metric was the fact that nondefense capital goods fell by 1.5% last month. That is something of a red flag and takes a bit of the luster from the better-than-expected report, overall. On the other hand, the sharp increase of 11.5% in autos last month, was the strongest in more than eight years. We suspect much of this gain reflected the easier access to parts from Japan following the recovery from that nation's tragic earthquake in early March. That would tend to give this component a false sense of strength that could well last for the rest of this year.
Manufacturing, meantime, has been a strong component of the underwhelming business recovery to date. However, there have been some wrinkles in the manufacturing sector of late, with several regional surveys issued over the past week or so, including yesterday's report from the Federal Reserve Bank of Richmond being a major disappointment. That dispiriting data followed weak reports from the manufacturing sectors in Philadelphia and New York State.
Finally, factory shipments climbed by 2.5% last month; unfilled orders, a sign of future demand, rose 0.7%; and inventories increased by 0.8%. Overall, it was a mixed report, but somewhat better than had been forecast.
At the time this article was written, the author did not have positions in any of the companies mentioned.