Durable Goods Report: July Data Dominated by Aircraft Orders

August 26, 2014

by Doug Short

The August Advance Report on July Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:

New orders for manufactured durable goods in July increased $55.3 billion or 22.6 percent to $300.1 billion, the U.S. Census Bureau announced today. This increase, up five of the last six months, was at the highest level since the series was first published on a NAICS basis in 1992, and followed a 2.7 percent June increase. Excluding transportation, new orders decreased 0.8 percent. Excluding defense, new orders increased 24.9 percent. Download full PDF

The latest new orders number came in at 22.6 percent month-over-month, dramatically above the Investing.com forecast of 7.5 percent. The record surge was the result of international aircraft orders.

If we exclude transportation, "core" durable goods came in at -0.8 percent MoM, higher than the Investing.com forecast of 0.5 percent. Without the volatile transportation series, the YoY core number was up 6.6 percent.

If we exclude both transportation and defense for an even more fundamental "core", durable goods were up 0.6 percent MoM and up 7.3 percent YoY.

The Core Capital Goods New Orders number (nondefense capital goods used in the production of goods or services, excluding aircraft) is another highly volatile series. It was down 0.5 percent MoM, but the YoY number was up 8.3 percent.

The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two. Over the past year, the market has certainly pulled away from the durable goods reality, something we also saw in the late 1990s.

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An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

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Here is an overlay with GDP — another comparison I like to watch.

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The next chart shows the percent change in Core Durable Goods (which excludes transportation) overlaid on the headline number since the turn of the century. This overlay helps us see substantial volatility of the transportation component.

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Here is a similar overlay, this time excluding Defense as well as Transportation (an even more "core" number).

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This last chart is an overlay of Core Capital Goods on the larger series. This takes a step back in the durable goods process to show Manufacturers' New Orders for Nondefense Capital Goods Excluding Aircraft.

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In theory the durable goods orders series should be one of the more important indicators of the economy's health. However, its volatility and susceptibility to major revisions suggest caution in taking the data for any particular month too seriously.

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