July 2018 Durable Goods Orders

Orders for goods expected to last longer than three years declined according to the Census Bureau.  After June’s downwardly revised uptick of 0.7 percent (originally 1.0 percent), July’s figure fell 1.7 percent.  This is the third headline decline in the past four months. 

Despite the dour headline, the details in the report suggest an encouraging narrative.  First, if military spending is stripped out, the remaining components declined just 1.0 percent.  Next, if both defense and aircraft orders are removed from the capital goods category, this “core” measure rose 1.4 percent.  You might be thinking that we are removing a lot of items in order to find a positive, and we are, but everybody is doing it.  That which is left when aircraft and military orders are removed from capital goods orders is somewhat of a proxy for business confidence.  July’s uptick suggests firms are feeling good and are thus willing to spend more money on equipment in anticipation of a positive return on their investment.

Other portions of the report were encouraging as well.  For instance, motor vehicle orders looked strong.  This consumer-focused portion of the report increased 3.5 percent.  Those in the business must be expecting to sell more automobiles in the near future.  Also, shipment data were strong for capital equipment, suggesting a robust start for third-quarter gross domestic product.

Whether it was the forward-looking orders portion or the more coincident shipment data, many of the details Atlas finds most significant were positive in this iteration of durable goods orders.  Firms are investing, even as they continue to receive their previous orders in the current quarter.  In sum, this indicator confirms the upward trend of the American economy remains intact.