Durable Goods: Another Bad Report, Diving Into Questionable Details

With the second quarter roughly half over (from a data delivery standpoint), we have had three reasonably good or better hard data points, and at least a dozen bad ones.

by Mish

Today we have another bad data point with Durable Goods Orders down 1.1% vs an Econoday consensus of -0.4%.

Moreover, April was revised lower to -0.9% from -0.7%.

Aircraft had been the strength but is now the weakness for durable goods which, pulled down by a second straight downswing for commercial aircraft, fell 1.1 percent in May. When excluding transportation, a reading that excludes aircraft, orders actually rose, but not very much at only 0.1 percent which falls 4 tenths shy of Econoday’s consensus. An unquestionable negative in the report is an unexpected 0.2 percent decline for core capital goods orders (nondefense excluding aircraft).
Orders for commercial aircraft fell a rounded 12 percent for a second straight month with orders for defense aircraft, which are always volatile, also hurting May, down 31 percent. Shipments of core capital goods, like orders for this category, are another weakness in the report, down 0.2 percent and when combined with April’s tiny 0.1 percent gain, don’t point to any punch at all for business investment in second-quarter GDP.
But there are positives in the report including a solid 0.6 percent jump in machinery orders, a category that helped limit the monthly dip in capital goods. Vehicles are also a positive with a strong 1.2 percent gain that follows a 0.5 percent rise in the prior month. Shipments of vehicles are on a similar climb.
Other readings include a 0.8 percent gain in total shipments that follows, however, two prior declines and an unwanted 0.2 percent decline in total unfilled orders which is once again back in the contraction column. Inventories rose 0.2 percent which is about in line with the rate of general activity.
This report isn’t all bad but the capital goods readings are a tangible disappointment for the second-quarter outlook, pointing to lack of confidence in business prospects. The data contrast sharply with the ongoing strength in regional surveys. But in actual government data, the factory sector isn’t having a breakout year as some had hoped.

Regional Surveys

The regional surveys are a joke. They have not matched actual hard data for over a year.

Motor Vehicles vs Reported Sales

Motor vehicles account for 23% of durable goods shipments and 24% of new orders.

Shipments were supposedly up a total of 1.8% in April-May period. New Orders were supposedly up 1.7% in the same timeframe.

Let’s match this up with auto sales.

Are the auto manufacturers planning a big June and July? If so, why? Revisions anyone?

Mike “Mish” Shedlock

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