Durable Goods Orders Surge

If manufacturing is the Federal Reserve's central focus, they have less to be worried about. Not even the 2.0 percent headline jump in June, which exceeds Econoday's consensus range, nor the 1.2 percent surge in ex-transportation orders that far exceeds the consensus range, take the spotlight in this report. It's a rare 1.9 percent jump in core capital goods orders that points to new confidence in the business outlook and the release of prior pent-up demand for new production equipment.

New orders for machinery rose 2.4 percent in the month with fabrications up 2.1 percent and primary metals up 0.8 percent. These are all the building blocks to increase future production. Outside of capital goods the good news includes a 3.1 percent order surge for motor vehicles, and to top it off, a 75.5 percent jump for civilian aircraft orders which in prior reports, in part reflecting Boeing 737 troubles, had been depressed. The only real soft spot in June were defense orders where aircraft fell sharply for a second month, down 32.1 percent.

Goods news also comes from readings outside of new orders especially a 0.6 percent June rise in shipments of core capital goods. As the jump in orders for this category points to shipment strength in the third quarter, the strength in June shipments points to strength and perhaps upward revisions for nonresidential fixed investment in tomorrow's second-quarter GDP report.

Total shipments rose 1.4 percent in June, also very strong, with inventories rising a comparatively modest 0.3 percent which points to the need to rebuild inventories in what is yet another positive.

Not positive at all, however, is a third straight decline for unfilled orders, down 0.7 percent in June that includes a 0.8 decline for civilian aircraft. This follows aircraft declines of 1.2 percent and 0.5 percent in the prior two months in what may be a 737 effect.

Boeing 737 aside, this report is an echo of the strength of last week's industrial production report where manufacturing posted its strongest performance of the year, and it diminishes the need for Fed rate cuts and will have to be put into broad context or explained away by Jerome Powell at his press conference next week should the Fed indeed lower rates.