Durable Goods Orders Rise On Aircraft

Helping to give a 1.0 percent boost to durable goods orders, aircraft orders did in fact rise sharply in June but still not nearly as much as expected given Econoday's consensus for a 3.2 percent surge. Civilian aircraft orders rose 15.7 percent in the month but follow sharp declines of 21.0 percent and 39.4 percent in the prior two months. Excluding transportation, durable goods orders managed a moderate 0.4 percent rise to just miss expectations for 0.5 percent.

Strength in the report is centered in core capital goods (nondefense ex-aircraft) where orders rose 0.6 percent to just exceed Econoday's consensus. Shipments for this reading, which are inputs into GDP, rose a sharp 1.0 percent which should raise estimates for second-quarter nonresidential investment.

Orders for primary metals fell 0.4 percent following May's 0.1 percent dip, with fabrications, which are indirectly affected by tariffs, up only 0.1 percent in June after a 1.2 percent May decline. These two components make up more than 20 percent of total durable orders. In contrast to the soft new order data, inventories and unfilled orders for both primary metals and fabrications are building sharply.

Total unfilled orders, which have been building in recent months, rose a useful 0.4 percent in June which is another positive for the factory employment outlook. Total shipments surged 1.7 percent while inventories, which were already lean, slipped 0.1 percent. This mismatch drives the inventory-to-shipments ratio down sharply, to 1.60 vs 1.63 in both May and April.

Though aircraft is soft, this is otherwise a very positive report showing solid strength for capital goods. Manufacturing remains one of this year's top performing sectors.