In a surprising turn of events, data released on Thursday by the government indicated that US durable goods orders unexpectedly fell in June. This decline came after four consecutive months of gains, primarily dragged down by the transportation equipment sector. According to the Census Bureau, orders for tangible goods, which possess an average lifespan of at least three years, experienced a significant drop of 6.6% to approximately $264.54 billion last month.
This marked a sharp contrast to the 0.1% increase observed in May, diverging from the consensus expectation of a modest 0.3% rise derived from a survey conducted by Bloomberg. Diving deeper into the figures, new orders for transportation equipment plunged by nearly 21%, totaling $75.85 billion in June.
This decline is attributed to a staggering 127% plummet in orders for nondefense aircraft and parts, complemented by a 10% decrease in defense-related orders, illustrating the volatility within this sector. It's noteworthy that when transportation is excluded from the equation, new orders actually increased by 0.5%, which surpassed expectations of a mere 0.2% rise as per Bloomberg’s compiled consensus. BMO's Senior Economist, Jay Hawkins, provided insight on the matter, mentioning in a note to clients that, "the details of the durable goods report were not as gloomy as the headline decline suggests, although orders are likely to remain uneven until the Federal Reserve begins cutting interest rates in September." This sentiment reflects the cautious optimism some economists are sharing about potential recovery, despite current data showing weakness in certain areas. The financial markets are currently anticipating that the Federal Reserve's Federal Open Market Committee will opt to keep its benchmark lending rate unchanged in the upcoming week.
Moreover, a 25-basis-point cut is forecasted for September, according to analysis from the CME FedWatch tool, which tracks market probabilities for Fed policy changes. Further observations revealed that new orders for computers and related products, in addition to primary metals, saw decreases of 1.1% and 0.1%, respectively.
Interestingly, in contrast, segments like communications equipment and machinery demonstrated positive trends, rising by 3.5% and 1.6%, respectively, indicating a mixed bag of performance across different manufacturing sectors. Looking at shipments, the total for manufactured durable goods rose by 1.2% sequentially, reaching $288.06 billion, following a 0.4% decline in May.
This rebound in shipments was spearheaded by a 3.8% increase in transportation equipment, reinforcing the notion that while orders have faltered, shipping levels showed some resilience. Examining capital goods, the nondefense new orders took a substantial hit, sliding by 22% month-on-month to $65.20 billion.
On a brighter note, shipments of these goods witnessed a 5.2% increase, amounting to $84.83 billion. Defense-related new orders for capital goods experienced a 6.1% rise to $14.6 billion, yet shipments experienced a decrease of 3.3%, settling at $14.02 billion. Overall inventories were slightly adjusted, registering at $529.39 billion in June compared to $529.52 billion the prior month.
This suggests a careful balancing act as manufacturers adapt to the changing economic landscape..