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Durable Goods Orders Slip in May

Posted by Joseph Trevisani on Jun 27, 2017 3:05:15 PM

New orders for durable goods from businesses and consumers declined in May suggesting that neither sector is strong enough to drive U.S. economic growth beyond the 2.3 percent average of the last three quarters.

Purchases of goods designed to last at least three years, from toasters and computers to cars, fell 1.1 percent, and the April result was revised lower to- 0.9 percent from -0.8 percent Commerce Department data showed on Monday. It was the largest drop since last November. Orders had been forecast to decrease 0.6 percent.  

Capital goods orders for business equipment in unexpectedly slipped 0.2 percent in May missing the prediction for a 0.3 percent rise. April’s result gained 0.1 percent under revision to 0.2 percent.  It was the biggest monthly drop since December. Shipments of these 'core capital goods' which are used by the government to calculate the business spending component of gross domestic product fell 0.2 percent following Aprils 0.1 percent gain. 

Goods orders excluding the volatile transportation sector, in practice the civilian aircraft industry, rose 0.1 percent in May after the prior month’s 0.5 percent decline. Orders had been projected to increase 0.5 percent.  Orders for non-defense aircraft dropped 11.7 percent in May while those of military aircraft and parts plunged 30.8 percent. 

American economic growth has faltered for the last two quarters falling from an annual rate of 3.5 percent in the third quarter of last year to 2.1 percent in the final three months and 1.2 percent in the first quarter of this year. Current projects for the second quarter from the Atlanta Federal Reserve’s GDPNow model remained at 2.9 percent after yesterday’s release with the bank noting that the negative durable goods report was offset by a better forecast for real residential investment growth. 

While job creation remains strong, at least measured by non-farm payrolls and the unemployment rate which fell to a 16 year low in May, employee compensation has lagged well behind its historical average, barely outpacing inflation and leaving the consumer little extra cash for larger purchases, particularly of long-term and relatively expensive durable goods.  

Initial projections for the second quarter GDP growth were over 4 percent but they have declined sharply in June as retail sales figures, manufacturing production and inflation data have been weaker than expected and new home construction has unexpectedly has fallen 8.2 percent  in two months from March. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters

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