Tuesday, 26 of September of 2017

Economics. Explained.  

Durable Goods Orders

August 25, 2017

Durable goods orders declined 6.8% in July after having jumped 6.4% in June.  However, the gain this month as in June was concentrated in the transportation category, non-defense aircraft orders in particular.   As always this is a very volatile series.  Over the course of the past year durables have risen 4.1%.

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was certainly the case in recent months.  Transportation orders fell 19.0% in July after having risen 19.1% in June. This means that non-transportation orders rose 0.5% in July after having climbed 0.1% in June and 0.8% in May.  Over the past year non-transportation orders have risen 6.3%.  This series has been steadily rising for the past year.

Economists are also interested in capital goods orders so we can get some sort of a handle on the investment spending portion of GDP.  But even capital goods orders can get blown around from one month to the next if there is a huge defense order or if there is a big airline order.  Orders will rise very sharply one month, only to decline almost as sharply in the subsequent month.  Thus, the focus is typically on non-defense capital goods orders ex air.  These orders rose 0.4% in July after having been unchanged in June and having risen 0.8% in May.  Over the course of the past year such orders have risen 3.5%.  At long last these orders seem to be rising slowly.

The backlog of orders declined 0.3% in July after having jumped 1.3% in June.  If orders begin to climb consistently the backlog will climb as well which will eventually boost production.   We are not looking for a lot of strength from the manufacturing sector this year, but we do expect it to continue its gradual uptrend.

We think that the manufacturing sector is on a slow but steady uptrend.   Home prices are rising.  Consumer net worth is at a record high level.  Corporations are making near record profits.  They have a ton of cash to invest.  Interest rates are near historic lows.  And the rate of capacity utilization in the manufacturing sector suggests a need fairly soon to either re-furbish the assembly line and/or invest in new technology.  And with both corporate and consumer tax cuts now in the works the factory sector should get a boost in 2017.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  5.1% in 2017 and 4.9% in 2018.

Stephen Slifer


Charleston, SC

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