New orders for manufactured durable goods fell for the first time in February, coming in at $285.93B in July. This is a 5.2% decrease from the previous month and is worse than the expected 4.0% decline. The series is up 3.8% year-over-year (YoY). If we exclude transportation, "core" durable goods were up 0.5% from the previous month and up 1.1% from one year ago.
New Orders
New orders for manufactured durable goods in July, down following four consecutive monthly increases, decreased $15.5 billion or 5.2 percent to $285.9 billion, the U.S. Census Bureau announced today. This followed a 4.4 percent June increase. Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders decreased 5.4 percent. Transportation equipment, also down following four consecutive monthly increases, drove the decrease, $16.4 billion or 14.3 percent to $98.7 billion.
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Durable Goods
Durable goods refers to tangible products that can be stored or inventoried and that have an average life of at least three years. Durable goods are typically expensive and therefore tend to be purchased when there is confidence in the economy. New orders for durable goods are a leading indicator, meaning when purchases increase it typically hints at an improvement to the economy. On the flip side, when the new orders trend down it is indicating a lack of confidence in the economy.
For a look at the big picture and an understanding of the relative size of the major components, here is an area chart of durable goods new orders minus transportation and defense with those two components stacked on top. We've also included a dotted line to show the relative size of core capex.
The next chart shows the year-over-year percent change in durable goods. We've highlighted the value at recession starts and the latest value for this metric.
The next chart shows the year-over-year percent change in core durable goods (i.e., excluding transportation).
The next chart shows the growth in core durable goods (purple line) overlaid on the headline number (green dots) since the turn of the century. This overlay helps us see the substantial volatility of the transportation component.
Here is a similar overlay, this time excluding defense as well as transportation (an even more "core" number).
Durable Goods - Core Capex
Core capital goods new orders are manufacturers' new orders for non-defense capital goods excluding aircraft and is an important gauge of business spending, often referred to as "core capex." Core capex is company spending that is used to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, and equipment. This month, core capex was up 0.1% MoM and up 0.9% YoY.
The next two charts take a step back in the durable goods process to show illustrate core capex. Here is the year-over-year core capex.
The next chart is an overlay of core capital goods (excluding defense) on the larger series showing the percent change of the two since the turn of the century.
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. Additionally, this series is not adjusted for either population growth or inflation. For a look at durable goods data with those two adjustments, check out our Real Durable Goods Per Capita update.
This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at VettaFi | Advisor Perspectives
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