Durable Goods Orders Steady

Aircraft orders proved strong for a second straight month in July while core capital goods orders proved steady and solid despite a downward revision to what was still a very strong June. Total orders jumped 2.1 percent as orders for civilian aircraft jumped 49 percent following June's 101 percent gain that followed a run of weakness. Motor vehicle orders were also solid in July, up 0.5 percent to extend their run of strength. Yet when excluding civilian aircraft and vehicles as well as all other transportation equipment, durable goods orders disappointed with a 0.4 percent July decline.

Core capital goods orders (nondefense ex-aircraft) rose 0.4 percent with June now at 0.9 percent versus an initial 1.9 percent gain. Yet despite these strong indications for future shipments, shipments of core capitals goods in July, which are inputs into the nonresidential fixed investment component of GDP, opened the third quarter with a 0.7 percent decline.

The bulk of the order breakdowns in fact do show weakness: primary metals down 1.0 percent, fabricated metals down 0.9 percent, and machinery -- despite the gain for core capital goods -- actually down 0.6 percent in July. Helping capital goods was a 1.9 percent jump in orders for communications equipment which has been building a very strong run with gains of 3.7 and 2.0 percent in the two prior months. Electrical equipment is also in demand and another plus for capital goods, up 1.1 percent and also enjoying a strong streak.

Outside of new orders, unfilled orders edged 0.1 percent higher to end three prior months of declines while inventories rose 0.4 percent which, however, against a 1.1 percent drop in total shipments, points to the risk of overhang and is a negative indication for future manufacturing production and employment.

With the ongoing grounding of the 737 Max and amid prior questions over demand for capital goods, today's report, despite areas of weakness, may help ease concerns at the Federal Reserve which is focused on the health of the manufacturing sector and specifically aircraft and especially business investment. On net, today's report may reduce the need at the Fed, at least slightly, for further rate cuts.