Factory Orders Strong In July

Factory orders have been flat this year but proved strong in July, opening the third quarter with a 1.4 percent gain that reflects a 2.0 percent increase for durable goods (revised 1 tenth lower from last week's advance data) and a 0.8 percent rise for nondurable goods (the new data in today's report).

Commercial aircraft are always a wild card and, given large monthly swings in orders, are often excluded when evaluating this report. Yet given the continued and extended grounding of the Boeing 737 Max, recent gains are very welcome including back-to-back monthly increases of 49 and 101 percent. When excluding aircraft and all other transportation equipment, factory orders rose 0.3 percent in July.

In a special downbeat note, an initial 0.4 percent rise in new orders for core capital goods (part of the advance durables data) is revised downward to a 0.2 percent increase. Though this follows a strong 0.9 percent rise in June, July's pace hints at slowing momentum in business investment which is a central concern for Federal Reserve policy makers. Yearly growth for core capital goods orders, at only 1.5 percent, is no better than the rate of inflation. And shipments of core capital goods, which are inputs into quarterly GDP data on fixed investment, fell a monthly 0.6 percent in July (revised from an initial 0.7 percent decline).

But there is still more good than bad news in this report, highlighted by by growth in aircraft orders that should ease 737 concerns at the Fed. Exports have been slowing this year but have yet, despite warning signals from anecdotal reports like ISM manufacturing, to topple the US factory sector.