July 2017 Durable Goods Orders

Orders for wares expected to last longer than three years took an expected tumble in July 2017 according to the Durable Goods Report from the Census Bureau. As Atlas wrote here, June’s outsized jump was led by soaring orders for aircraft (up 129.3 percent in period; downwardly revised from 131 percent), but this was not repeated a month later. Instead, aircraft plummeted 70.7 percent, and the headline figure fell 6.8 percent.

Despite the headline figures descent, data on Atlas’s favorite category in this report was relatively strong. These nondefense capital goods excluding aircraft (aka core capital goods orders) increased after remaining flat a month earlier. This proxy for business confidence increased 3.3 percent in the previous 12 months. However, this annual trend did decelerate from 5.75 percent, so Atlas will keep an eye on this figure in the months ahead for further signs of erosion. In the meantime, coincident data in the release looked constructive.

Shipments of core capital goods orders jumped 1.0 percent in the period, boding well for third quarter 2017 gross domestic product (GDP). Capital investments are the second largest component in our nation’s economy, so this strong tally could boost output growth from July through September. Additionally, the June figure was revised higher to 0.6 percent from the previous tally of 0.4 percent; this could enhance the second quarter GDP tally when it is revised tomorrow.

Orders for durable goods suggest the economy’s expansion should continue. This is a forward looking indicator since the requisitions will turn into actual output once they are completed. As long as this cyclically sensitive segment of the economy can maintain a positive trend, the probability of the next recession starting in the next quarter or two (without some sort of exogenous shock as a catalyst) is infinitesimal.