New orders for U.S. durable goods dropped sharply in June, dragged down by weaker demand for civilian aircraft and defense products.
The Commerce Department said orders for items meant to last three years sank 4% to $219.8 billion last month, the biggest drop in almost two years. Economists polled by MarketWatch had expected a seasonally adjusted 1.7% decline.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, edged up 0.2% in June after falling in the prior two months. But core orders are 3.8% lower through the first half of the year compared to the same period in 2015.
New orders fell most sharply for commercial airplanes and military hardware such as ships, tanks and fighter jets. Passenger plane bookings dropped nearly 60% and orders for defense capital goods fell 21%.
Demand was also done for makers of primary metals, fabricated parts and machinery used in a wide variety of consumer and commercial products.
“A relatively strong U.S. dollar and weak economies overseas have put downward pressure on exports, hurting manufacturers,” The Wall Street Journal said. “The latest figures mostly reflect demand before the U.K. voted to leave the European Union in late June. After the vote, the dollar strengthened further against the British pound and the euro, presenting another potential headwind.”
The WSJ also noted that the durable orders report contrasts with other recent data suggesting the U.S. manufacturing sector stabilized in June.
Some economists expect the durable goods weakness will persist, particularly amid a contentious presidential election.
“Businesses have taken a cautious approach toward investment for several years now, so this is nothing new,” Stephen Stanley, chief economist at Amherst Pierpont Securities, told MarketWatch. “But I think, if anything, the situation is likely to get worse rather than better in the near term, as many firms that have flexibility in the timing of their investment decisions are likely to sit on their hands until after the election.”