Durable Goods Orders Fall As Expected

Disruption tied to a fire at an auto supplier not only pulled down the previously released manufacturing component of the industrial production report but it also help pull down durable goods orders in May which fell an as-expected 0.6 percent. Vehicle orders fell 4.2 percent in the month with vehicle shipments down 4.4 percent. Civilian aircraft orders, which had been very strong earlier in the year, fell for a second month, down 7.0 percent following April's 30.3 percent downswing. Excluding vehicles and civilian aircraft as well as all other transportation equipment, orders were still lower, down 0.3 percent to barely make Econoday's consensus range.

Also barely making the consensus range are core capital goods (nondefense ex-aircraft) which fell 0.2 percent though here an upward revision to April, to a 2.3 percent surge and more than double the initial reading, is a major offset. Shipments for this reading, which are inputs into business investment for second-quarter GDP, are mixed, down 0.1 percent in May but with April revised 1 tenth higher to an even stronger 1.0 percent gain.

Turning to tariff-exposed readings, orders for primary metals slipped 0.4 percent following, however, April's upward revised 2.4 percent gain and March's 4.7 percent spike, with fabrications, which are indirectly affected by tariffs, down 1.2 percent following gains of 3.3 and 1.3 percent in the prior two months. These two components make up more than 20 percent of total durable orders. Inventories and also unfilled orders for both primary metals and fabrications continue to build.

A very strong reading comes from total unfilled orders which rose 0.5 percent following builds of 0.6 percent and 0.8 percent in the prior months which is by far the best showing in 4 years. Durables inventories look to be another positive for second-quarter GDP, up 0.3 percent for a second straight month.

This report is mixed and the metals results are hard to read, but there are plenty elements of strength and they point to a U.S. factory sector that is very solid going into what may prove a summer of trade disruptions.