The Economy

Durable Goods Orders Fall to Three-Year Low

Core capital goods orders rose 0.4% in July, suggesting business spending is picking up early in the third quarter.
Matthew HellerAugust 25, 2017

Orders for durable goods manufactured by U.S. companies fell by the largest amount in three years in July but the report also showed another gain in business spending.

The Commerce Department on Friday said orders for long-lasting goods declined 6.8% after a 6.4% gain in June. It was the biggest drop since August 2014 and exceeded economists’ expectations of a 6.0% decline.

After a stellar June, the airline industry came back to earth, with Boeing reporting 22 new plane orders in July versus 184 the previous month. But excluding transportation, orders for durable goods rose 0.5%, the third straight monthly gain.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

In addition, core capital goods orders, which economists watch as a proxy for business spending plans, increased 0.4% last month after being unchanged in June. That key metric hasn’t declined since December and economists had expected a 0.3% gain in July.

“Businesses are boosting spending despite uncertainty over the prospect of tax cuts,” Reuters said.

Core capital goods orders are also up 3.3% from a year ago, with spending boosted by the energy sector, where oil and gas drilling has rebounded after declining due to the collapse in crude oil prices. Business spending on equipment added 0.44 percentage point to the economy’s 2.6% annualized growth pace in the second quarter, the most in nearly two years.

“As this rebound in capital spending appears sustained, we are forecasting another mid-single-digit advance in business investment in the third quarter,” NatWest economists said in a note to clients.

Shipments of core capital goods, meanwhile, jumped 1.0% in July after an upwardly revised 0.6 percent increase in June. The pickup in business investment is “helping to offset some of the drag on manufacturing from declining motor vehicle production,” Reuters noted.

Last month, orders for machinery fell 1.4%, the biggest drop since May 2016, after rising 0.6% in June.

Orders for motor vehicles and parts dropped 1.2% in July, the biggest decline since May 2016, after decreasing 0.7% in June. Auto sales peaked in December 2016 and slowing demand has led to three consecutive monthly declines in motor vehicle production.