Durable goods orders show modest growth despite supply problems

Summary

Durable goods orders rose 0.8% in June, which was short of the consensus expectation, although prior months' figures were revised higher. The fourth consecutive monthly gain in core capital goods shipments highlight our theme of sustained demand for long-lived durable goods and steady overall business spending. The back-to-back monthly gains of 0.5% in core capital goods orders in May and June show that despite supply chain challenges the outlook remains bright.

Headline miss but core capital goods orders hold up

Durable goods orders came in weaker than expected in June with an overall gain of just 0.8%, well short of the 2.2% that had been expected, but the fact that prior month figures were revised higher takes some of the stings out of the miss. This was particularly true for core capital goods orders which came in closer to consensus estimates, rising 0.5% in June versus an expected 0.7% on the heels of an upward revision that lifted May's scant 0.1% gain to a respectable pick-up of 0.5%.

Motor vehicles and parts orders have been hit-and-miss so far this year and even though orders have fallen in four out of the first six months of the year, orders for this category are still up 5.5%relative to June 2020. It is not a demand-side problem for aerospace, and we look for a sustained increase when the supply chain pressures abate.

Defense spending has fallen in four out of five months amid the drawdown of U.S. military presence in Afghanistan and Iraq. However, the declines are being offset by a rebound in civilian aircraft orders. After having been beset by the combined challenges of aircraft safety concerns and the pandemic which for a while sapped demand for travel, the domestic manufacturing of aircraft is rebounding. Nondefense aircraft orders have risen by double digits in percentage terms in each of the past three months. 

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