Durable Goods Analysis

July 27th, 2015 9:15 am | by John Jansen |

Via Cheng Chen at TDSecurities:

Headline durable goods orders surprised to the upside, rebounding a robust 3.4% m/m in June as strong transportation orders led gains. While markets focused on downward revisions to the May report, we note that weaker May data was already made public in the May factory orders report nearly a month ago, suggesting that the 2.1% headline decline last month and weaker core orders data was not news. The considerable rebound in headline orders should be seen as particularly positive, however, as the data points to a strong rebound in capital investment. Excluding transportation, orders rose at fairly brisk 0.8% m/m and core capital goods orders were up at a very strong 0.9% m/m, hinting at underlying strength in capital expenditures. Shipments were weaker on the month, however, falling a further 0.1% m/m after a 0.3% decline in May.
The details of the report were broadly encouraging. Stronger vehicle and aircraft sales have gone a long way in supporting headline orders in June with an 8.9% m/m gain. Beyond the gain in transportation, there was strength in orders for computers and electronics (up 0.2% m/m), electrical equipment (up 2.8% m/m), machinery (up 1.4% m/m) and fabricated metals (up 2.0% m/m). Primary metals declined 1.4% m/m, however.
The underlying tone of the June durable goods orders report provides a strong hint that investment activity remains on the upswing. While downward revisions to shipments were not particularly encouraging, we look for Q2 GDP growth to pick up considerably to 2.5% q/q ann.
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