Demand of U.S.-manufactured durable goods (items meant to last at least three years) improved last month, according to a new report from the Census Bureau. Specifically, “core” durable goods orders, which exclude the volatile transportation component, lifted by 0.3 percent in May. That was the first monthly gain since January, the largest since October 2018, and significantly better than analysts expected. Headline durable goods orders actually fell in May, but this particular metric remains even noisier than usual due to the still unfolding disruptions resulting from the Boeing 737 MAX grounding.
More importantly, orders for nondefense capital goods excluding aircraft, i.e. core capital expenditures, an important proxy for U.S. business investment, jumped by 0.4 percent in May. That was the fourth increase in the past five months, the largest gain since the start of the year, and the shipments category performed even better. Altogether, the annual pace of growth has clearly slowed, but last month’s solid core reading is another encouraging sign that business investment is holding up rather well in the face of unpredictable trade policy. Moreover, the “hard” data on actual factory output continue to paint a brighter picture than the “soft” survey data released recently, and the revised estimates for second quarter gross domestic product growth from regional Federal Reserve banks suggest that these durable goods figures will help offset the latest deterioration in the trade deficit.
Sources: Econoday, U.S. Census Bureau, Bloomberg, FRBA, FRBSL