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Durable Goods Orders, Less than Meets the Market Eye

Posted by Joseph Trevisani on Jul 25, 2013 12:48:00 PM

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New orders for industrial and consumer goods designed to last more than three years soared in June and business investment improved for the fourth month as firms’ position for the predicted pickup in the second half of the year.

Orders for durable goods surged 4.2 percent according to the Commerce Department, triple the 1.4 percent forecast. May orders were revised to 5.2 percent from 3.6 percent.

Non-defense capital goods excluding aircraft, also called core capital goods, a closely watched substitute for business spending and outlook rose 0.7 percent in June, just over the 0.6 percent prediction and following upon May's strong result which revision doubled to 2.2 percent.

The robust performance in June durable goods orders, however,  was limited to the transport sector where orders for civilian aircraft rose 12.8 percent.  Orders excluding transportation were flat after a revised 1.0 percent gain in May. Economists in the Bloomberg survey had forecast a 0.5% increase.

Boeing obtained 287 new orders in the month, a 24 percent increase over May's 232. Machinery orders also rose but placements for computers, electronic products and appliances dropped.

The gain in durable orders and capital goods mirrored the return to expansion of the ISM manufacturing index at 50.9 in June after a one month drop into contraction at 49.0

Businesses ordered more equipment because they are anticipating  reviving sales in second half of the year as forecast by many economists. If sales do not rise then orders in future months will drop as firms adjust to lower sales with fewer facilities.

Shipments of these core capital goods declined 0.9 percent in June following a 1.9% increase in May. A gain of 1.1 percent had been predicted.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets

Charts: Bloomberg

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