In a notable rebound, US durable goods orders surged beyond expectations in July, primarily fueled by a significant recovery in defense and civilian aircraft sectors, according to recent government data released on Monday. The orders for tangible items, which are items expected to last at least three years, witnessed an impressive increase of 9.9% sequentially, reaching approximately $289.65 billion last month.
This follows a 6.9% decrease in June, indicating a robust recovery trajectory. The consensus estimate among economists anticipated a more modest 5% increase, highlighting the strength of the actual results as compiled by a survey from Bloomberg. Priscilla Thiagamoorthy, Senior Economist at BMO Capital Markets, commented on this positive turn, stating, "The better-than-expected figure was due to the substantial rebound in transportation equipment." This was particularly notable with Boeing's bookings, which dramatically soared after experiencing a decline in June.
Furthermore, defense aircraft bookings also demonstrated a notable increase. The new orders for transportation equipment surged by approximately 35%, climbing to $102.24 billion in July, rebounding robustly from a drop of 21% in the previous month. Meanwhile, the defense aircraft and parts sector grew by 13% after a decrease of 4.8%, highlighting the cautious optimism surrounding defense spending.
In contrast, the civilian aircraft category turned around significantly in July, registering $23.43 billion after a negative reading of $4.2 billion in June. However, motor vehicles and parts saw a slight decline of 2.6%. Excluding transportation factors, the new orders experienced a minor decrease of 0.2% last month, slightly overshadowing the Bloomberg estimate of a 0.1% dip.
Notably, communications equipment retreated 1.1%, as indicated by the government data, suggesting challenges in that particular segment. Significantly, shipments of manufactured durable goods also increased, reaching $291.1 billion in July, up from $287.98 billion in June. Inventory levels climbed to $529.71 billion last month compared to $529.01 billion the previous month, reflecting the ongoing adjustments in supply chain dynamics. Additionally, orders for nondefense capital goods surged impressively by 42% to $92 billion, complemented by a 4.7% increase in shipments.
Defense orders for capital goods rose slightly by 1.2% to $14.99 billion, with shipments increasing by 4.4%, according to the government data, indicating steady sector performance. Despite this positive momentum, Thiagamoorthy cautioned, "While this provides a nice start to third-quarter business equipment spending, it's likely that we'll see a pullback in August," indicating potential volatility in future orders as market conditions evolve.
This outlook raises questions regarding the sustainability of the current recovery and its implications for broader economic indicators moving forward..