In a surprising turn of events, U.S. durable goods orders remained virtually unchanged in August, despite forecasts indicating a potential decline. According to the Census Bureau, orders for tangible items with an average lifespan of at least three years reached a total of $289.72 billion, only slightly up from July’s $289.59 billion.
This stability in orders contrasts sharply with a consensus estimate that predicted a 2.7% decrease, as per a survey by Bloomberg. Notably, July had witnessed a remarkable increase of 9.9% in orders, showcasing significant volatility in the manufacturing sector. Senior Economist Sal Guatieri from BMO Capital Markets noted, "The stalling of durable goods orders in August reflects a momentary pause; however, the recent strength observed in aircraft shipments suggests a rebound in business investment may be on the horizon this current quarter." A closer look at the breakdown reveals that new orders for defense aircraft and components surged by 8.4%, totaling $6.03 billion in August.
Conversely, the nondefense sector experienced a substantial reversal, with orders decreasing by 7.5% to $21.88 billion. Additionally, the transportation equipment category experienced a slight dip of 0.8%. When removing transportation factors, new orders exhibited a healthier picture, gaining 0.5% last month, which notably exceeded the Bloomberg estimate of a mere 0.1% rise.
This suggests that, while durable goods orders overall held steady, there were underlying strengths within specific sectors. On the shipments front, the report indicated a decrease of 0.5% to $289.44 billion, driven by a 1.9% decline in transportation equipment. Shipments of nondefense aircraft and components fell sharply by 9.4%, while defense shipments saw a milder decline of 1.3%.
Guatieri commented, "Although aircraft deliveries have dipped, this comes on the heels of a significant surge in the prior two months, which is expected to enhance nondefense capital goods shipments in the current quarter." This analysis implies a noteworthy increase in business equipment spending is anticipated for the third quarter, following an impressive nearly 10% annualized growth observed in the second quarter.
However, this momentum may not be maintainable as we approach the fourth quarter. The report also highlighted changes in the orders for capital goods. Nondefense new orders declined by 1.3% to $91 billion, while shipments in this category dropped by 1.6%. In contrast, defense orders for capital goods showed resilience, rising by 5.3% to $15.99 billion, despite a slight 1.5% decrease in shipments.
Additionally, inventories across the manufacturing sector reached $529.78 billion last month, up from $529.32 billion in July, indicating a robust stockpile in anticipation of future demand..