Factory Orders Strong For Capital Goods, Decline On Durables

Very strong showings for capital goods data offset what a headline decline of 0.8 percent in July factory orders. Orders for core capital goods (nondefense ex-aircraft) surged 1.6 percent which follows gains of 0.8 percent and 0.7 percent in the two prior months and compares with a 1.4 percent initial August gain posted in last week's advance data on durable goods.

Today's report includes initial data on nondurable goods where orders edged 0.2 percent higher vs a 1.7 percent decline on the durables side which is unrevised from the advance report. A 35 percent monthly downswing in commercial aircraft skewed the headline lower in a report that otherwise shows solid monthly gains for electrical equipment, machinery, mining & oil field equipment, motor vehicles, and ships & boats. Turning to tariff-impacted industries, orders for primary metals edged higher after edging lower in June with aluminum orders falling sharply for a second month.

Turning back to capital goods, core shipments jumped 1.0 percent for a second straight month in results that are both revised 1 tenth higher from prior data. These results point squarely at continuing strength if not building strength for business investment.

A weakness in July's data is no change for unfilled orders which, however, had been climbing in prior months. A major strength in the report is a very large 0.8 percent build in inventories which, together with previously released data on wholesale and retail inventories, point to a major build underway and a major plus for the third-quarter GDP.

Despite the headline decline, the factory sector remains the leading strength of the 2018 economy.