Durable Goods Orders Show Slight Increase, Capital Goods Orders Fizzle

Fizzling capital goods orders are the unwelcome key to what at the headline levels, at plus 0.2 percent overall and plus 0.5 percent ex-transportation, look like a better-than-expected durable goods orders report for August. But core capital goods orders (nondefense ex-air) fell 0.2 percent which misses Econoday's consensus for no change and include a major downward revision to July which had been at plus 0.4 percent but is now, like August, at no change. These two readings are not favorable indications for third-quarter business investment, the lynchpin to Federal Reserve rate-cut policy and their concerns that slowing global growth will eat into US manufacturing.

Electrical equipment as well as communications equipment, which are both major pieces of the capital goods group, posted sharp monthly declines while computers & electronic products also posted a decline. These offset strong gains for primary metals, fabrications, and also machinery all of which also feed into the capital goods reading. For GDP, orders don't count but shipments do and here the news isn't much better as a 0.4 percent August rise is more than offset by a 0.6 percent July decline.

August was also marked by a 17.1 percent swing lower in commercial aircraft orders, a drop that followed large gains in July and June, and also a sharp 0.8 percent monthly decline for motor vehicles & parts.

Orders overall have been soft this year, down 0.4 percent compared to August last year with core capital goods up only 1.1 percent. Commercial aircraft, which is having a rough year with the 737 Max grounding, has seen a 37.3 percent yearly decline. Doing better, however, have been motor vehicles with a 5.9 percent year-on-year gain.

Other readings in today's report include a marginal 0.1 percent uptick for unfilled orders, a moderate 0.3 percent rise in inventories against only a 0.1 percent increase in total shipments. Domestic manufacturing, outward facing and subject to foreign demand, has been holding back the general economy which otherwise, based on consumer spending, has nevertheless been having a good year.