The Economy

U.S. Durable Goods Orders Fall 2.2% in May

The surprising decline reflects uncertainty over the global economy that is likely to be magnified by the U.K.'s "Brexit" vote.
Katie Kuehner-HebertJune 24, 2016

U.S. businesses were already investing less due to rising economic uncertainty even before Britain voted to leave the European Union.

New orders for manufactured durable goods in May unexpectedly fell 2.2% to $230.7 billion, after rising 3.3% in April, the Commerce Department said Friday. Non-defense capital goods orders excluding aircraft, or core capital goods orders, fell 0.7% last month after dropping 0.4% in April. Shipments of core capital goods fell 0.5% last month after an 0.6% increase in April.

Economists on average had forecast that durable goods orders would fall 0.4% and core capital goods orders would rise 0.3% in May.

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According to Reuters, uncertainty over the global economy and the upcoming U.S. presidential election are making companies cautious about spending and that uncertainty is likely to be aggravated by Britain’s shock vote to leave the European Union.

“The surprising ‘leave’ outcome of the British referendum will result in the intensification of these uncertainties, potentially hampering business capital investment,” TD Securities’ deputy chief economist Millan Mulraine told Reuters.

Weak business spending and the Brexit referendum make it unlikely that the Federal Reserve will raise interest rates in the near-term and will likely continue to weigh on economic growth in the second quarter.

“ ‘Brexit’ will not likely help matters,” Steve Blitz, chief economist at M Science, said in a note to clients.

Last month’s drop in durable goods orders was led by a 34.1% decline in military-aircraft orders. Friday’s numbers showed “broad-based and persistent softness across the U.S. manufacturing sector,” Barclays economist Jesse Hurwitz said in a note to clients.

New orders for non-defense capital goods excluding aircraft, a closely watched proxy for business investment in equipment, fell 0.7% in May from April.

“The manufacturing sector has faced pressure since late 2014 from falling oil prices, which squeezed domestic energy production, and lackluster demand for U.S. exports, partly reflecting a strong dollar,” The Wall Street Journal said.

If U.S. business spending on equipment falls in the second quarter, it would be the first time since the recession of 2008 that it would have contracted for three straight quarters.