Durable goods orders stabilize in August

Summary

Durable goods orders declined for the second consecutive month in August, but in stripping away volatile factors, the underlying details of the report point to some stabilization in core orders. While the August durable goods report suggests new demand is not yet falling off a cliff, the broader manufacturing sector is still facing tough conditions.

Some sign of strength in August orders

New orders for durable goods came in slightly better than expected in August slipping just 0.2% during the month (chart). While the manufacturing sector still looks to be losing momentum, activity is not falling off a cliff. Digging into the details of the report shows a rebound in defense aircraft orders specifically helped prevent a steeper decline in orders last month (orders ex-defense declined 0.9%). That, however, was partially offset by a pullback in nondefense aircraft orders, consistent with previously published data from Boeing that revealed a sizable pullback in monthly orders for aircraft last month. Cutting through the noise, underlying core capital goods orders, which strips defense and aircraft rose 1.3%, or at the fastest pace in eight months.

Even after considering inflation, the orders data were relatively solid in August. Core capital goods orders adjusted by the Producer Price Index (PPI) for private capital equipment rose 0.5% over the past three months at an average annualized rate, marking a breakaway from recent weakness (chart). Core capital goods orders were relatively broad based, with just orders for fabricated metal products declining 0.7% last month. The 3.1% gain in communications equipment was particularly impressive after the 4.6% increase a month earlier, and electrical equipment & appliances also rose a solid 1.0% in August. While the underlying orders details were favorable, the manufacturing sector remains under pressure.

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