Durable Goods Orders Slump 7.3 Percent in July

Andrew Klips  |

Manufacturing of long-lasting goods slowed more than expected in July, according to a Monday morning report from the Commerce Department on durable goods, products ranging from small kitchen appliances to airplanes that are meant to last more than three years.  Further, a proxy of future business spending fell for the first time in five months, likely raising concerns regarding the Federal Reserve slowing its massive asset-purchase plan.

The agency’s report showed that new orders for durable goods sunk by 7.3 percent to $226.6 billion during July, representing the biggest one-month fall since last August.  In each of the three prior months, new orders had increased, including a revised 3.9-percent rise in June (revised down from +4.2%).  Economists were expecting a decline in the headline figure, but only a 4.0-percent decrease. 

Transportation equipment, a volatile component, paced the decliners with a drop of 19.4 percent to $69.7 billion.  Orders for computers and electronic products were down by 3.6 percent, following a 0.8-percent drop in June.

Boeing (BA) reported receiving orders for 90 new aircraft in July, down from 287 in June.  That aided in a sharp drop in new orders for commercial aircraft, which are known to make wild swings month-to-month, of 52.3-percent in July.  In June, this segment was up 33.8-percent from May.

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Excluding the transportation category, new orders were down by 0.6 percent after a 0.1-percent increase from May to June and well below the 0.3-percent increase economists expected.

Shipments fell by 0.3 percent, marking the third decrease in four months, with June being the lone standout when shipments rose 1.1 percent.

Orders for core capital goods (non-defense capital goods excluding aircraft), a barometer of future business investment, snapped a four-month advancing streak by dropping 3.3 percent.  Shipments of core capital goods, a component of GDP, dropped 1.5 percent in July, following a 0.8-percent contraction in June.

Manufacturing comprises about 12 percent of the U.S. economy, so these soft figures for July are going to be scrutinized for potential lingering impacts of the so-called sequester that raised payroll taxes and cut federal spending earlier this year.  It will also have economists pondering the global economic recovery as well as hinting that the U.S. may not match the second quarter’s modest 1.7-percent annualized growth rate during the third quarter.

In the here-and-now, the data adds gasoline to the fire of uncertainty surrounding the Federal Reserve’s quest to scale-back its monthly purchases of $85 billion in Treasuries and mortgage-backed securities by the end of 2013.  Most economists believe that tapering will begin in September, but weakening data could keep that from happening.  On Thursday, the markets will get an updated estimate on gross domestic product from the second quarter.

To kick-off the new week, the Dow Jones Industrial Average is off by 17 points, the S&P 500 is essentially flat as is the Nasdaq.

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