US Durable Goods Orders: Signs of solid equipment spending in Q3 – Wells Fargo

Data released on Monday showed an increase above expectations in the Durable Goods Orders report. Analysts at Wells Fargo point out that despite a backdrop of a worsening supply chain crisis and rising material costs, core capital goods orders climbed in August even as unfilled orders stacked up.

Key Quotes: 

“Durable goods orders grew 1.8% in August, about three times the consensus-expected gain of 0.6%. The increase also comes on the heels of a substantial upward revision that flipped July's initially reported decline to an increase of 0.5%.”

“A surge in aircraft orders was largely expected and while the more than $7 billion increase in bookings for civilian aircraft provided considerable lift, there were modest gains even after excluding aircraft. Signs of stronger business spending were evident in a 1.3% gain in electrical equipment and a 1.4% gain in computers and communications equipment orders.”

“While this is no doubt a positive sign for real equipment spending in the third quarter, some of recent gain is likely due to rising prices.”

“We continue to expect fairly resilient demand followed by the need to replenish depleted inventories will keep orders rolling in and the manufacturing sector humming for some time to come. The need to meet elevated levels of backlog should also keep production solid. The bottom line: even once bottlenecks ease, the manufacturing sector will still have plenty of work to chip away at.”