May 2018 Durable Goods Orders
Submitted by Atlas Indicators Investment Advisors on July 9th, 2018
Orders for goods expected to last longer than three years deteriorated in May 2018 according to the Census Bureau. Their report on Durable Goods Orders fell 0.6 percent, worsening for a second consecutive period. April’s tally dropped a revised 1.0 percent (originally minus 1.7 percent).
Car and truck orders led the decline. Transportation experienced the steepest drop since 2015, falling $900 million. This is worth watching in the months ahead because it might be foreshadowing some of the negative impacts of the current trade skirmishes in which America is participating.
Atlas’ favorite line in the DGO release declined as well. Nondefense capital goods orders, excluding aircraft, declined 0.1 percent. This is the second contraction in three months for this category. Atlas views this as a proxy for business confidence, and firms’ conviction could be waning. It will warrant more scrutiny in the months ahead since business investment is the second largest component of gross domestic product (GDP) and tends to lead the contours of the business cycle.
Shipment data is also included in this report. This is more of a coincident indicator than the forward-looking orders portion of the release. May’s shipments declined (also led by transportation) after barely budging forward in April. This could offset some of the optimism seen in other parts of the economy when the second quarter GDP report is released later this month.
May’s DGO report is rather disappointing. There could be an economic storm on the horizon. This does not mean a recession is developing, but the economy could be transitioning from smooth sailing into choppier waters or some time in the doldrums.
