U.S. Durable Goods Orders Slump 1.7% Vs 0.7% Expected In July

by Ike Obudulu Posted on August 24th, 2018

Washington, D.C., USA: New orders for manufactured durable goods in July decreased $4.3 billion or 1.7 percent to $246.9 billion, the U.S. Census Bureau announced today. This decrease, down three of the last four months, followed a 0.7 percent June increase. Excluding transportation, new orders increased 0.2 percent. Excluding defense, new orders decreased 1.0 percent. Transportation equipment, also down three of the last four months, drove the decrease, $4.6 billion or 5.3 percent to $82.8 billion.

The consensus forecast from economists had expected new orders for manufactured durable goods in June to decrease by 0.7%

Shipments of manufactured durable goods

Shipments of manufactured durable goods in July, down following two consecutive monthly increases, decreased $0.5 billion or 0.2 percent to $250.8 billion. This followed a 1.6 percent June increase. Transportation equipment, down three of the last four months, drove the decrease, $1.6 billion or 1.9 percent to $83.9 billion

Unfilled orders for manufactured durable goods

Unfilled orders for manufactured durable goods in July, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $1,164.7 billion. This followed a 0.3 percent June increase. Computers and electronic products, up five consecutive months, drove the increase, $0.3 billion or 0.3 percent to $115.3 billion.

Inventories of manufactured durable goods

Inventories of manufactured durable goods in July, up eighteen of the last nineteen months, increased $5.0 billion or 1.3 percent to $408.3 billion. This followed a virtually unchanged June decrease. Transportation equipment, up three of the last four months, led the increase, $4.4 billion or 3.5 percent to $131.3 billion.

Nondefense new orders for capital goods

Nondefense new orders for capital goods in July decreased $3.6 billion or 4.6 percent to $74.7 billion. Shipments decreased $3.3 billion or 4.2 percent to $74.9 billion. Unfilled orders decreased $0.2 billion or virtually unchanged to $714.0 billion. Inventories increased $3.8 billion or 2.2 percent to $178.6 billion. Defense new orders for capital goods in July decreased $0.9 billion or 8.0 percent to $10.8 billion. Shipments decreased $0.1 billion or 0.7 percent to $11.4 billion. Unfilled orders decreased $0.5 billion or 0.4 percent to $147.0 billion. Inventories increased less than $0.1 billion or virtually unchanged to $22.9 billion.

Revised seasonally adjusted May data for all manufacturing industries

Revised seasonally adjusted June figures for all manufacturing industries were: new orders, $501.4 billion (revised from $501.7 billion); shipments, $501.6 billion (revised from $501.4 billion); unfilled orders, $1,164.7 billion (revised from $1,165.2 billion) and total inventories, $669.6 billion (revised from $669.3 billion).

Figures in text are adjusted for seasonality, but not for inflation. Figures on new and unfilled orders exclude data for semiconductor manufacturing. “Virtually unchanged” indicates that the change is less than 0.05 percent for a percent increase or decrease.

The Manufacturers’ Shipments, Inventories, and Orders (M3) survey or the Durable Goods Orders Report

The Manufacturers’ Shipments, Inventories, and Orders (M3) survey or the Durable Goods Orders Report provides broad-based, monthly statistical data on economic conditions in the domestic manufacturing sector. The survey measures current industrial activity – change in the total value of new purchase orders placed with manufacturers for durable goods – and provides an indication of future business trends.

The data can be volatile and revisions via the Factory Orders report released about a week later are not uncommon. Moving averages should be used to identify long-term trends.

Durable goods are generally defined as higher-priced capital goods orders with a useful life of three years or more

Durable goods are defined as hard products (capital goods) having a life expectancy of three years or more years, such as automobiles, computers, appliances, airplanes, semiconductor equipment and turbines.

The report is issued monthly by the Census Bureau of the U.S. Department of Commerce.

‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.  A weak durable goods report will also generally lead to a decline on the bond market.

Core Durable Goods Orders Report

Core Durable Goods Orders report measures change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items.

Orders for aircraft are volatile and can severely distort the underlying trend. The Core data is therefore thought to be a better gauge of purchase order trends;

Why Markets Care About Durable Goods Orders Report

It is  a leading indicator of production – rising purchase orders signal that manufacturers will increase activity as they work to fill the orders.

A durable goods report showing an increase in orders is a sign that the economy is trending upwards. This can be a sign of gains in the stock market.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy.

The Durable Goods Report gives more insight into the supply chain than most indicators, and can be especially useful in helping investors get a feel for earnings potential in the most represented industries: machinery, technology, manufacturing and transportation.

It provides forward-looking data such as inventory levels and new business, which count toward future earnings.

Other Economy News : Federal Reserve chairman defends pace of U.S. interest rate

U.S. Federal Reserve Chairman Jerome Powell said Friday he believes gradual increases in interest rates remain “appropriate” to keep the economy healthy and thriving, suggesting the central bank will continue with its planned increases despite criticism from President Donald Trump.

Trump on Monday criticised the Fed for hiking rates too quickly, saying he was “not thrilled” with Powell, his own choice to lead the Fed.

Powell did not mention Trump by name on Friday, but the Fed chair made it clear that he and his colleagues on the committee that decides interest rates have not changed their minds on what the best course of action is for the US economy. The Fed is independent, and while the chairman is nominated by the president and confirmed by the Senate, the president has no direct control over the central bank’s actions.

“If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate is likely to be appropriate,” Powell said here at the central bankers’ annual gathering, which is organised by the Federal Reserve Bank of Kansas City.

Fishing in the Snake River in Jackson Hole, Wyoming, U.S., on Thursday, Aug. 23, 2018. Federal Reserve Chairman Jerome Powell’s debut address to the Wyoming gathering of central bankers this week will do little to shake financial markets if history is any guide. Photo: Bloomberg

Powell characterised the US economy as very healthy and said the Fed expects growth and hiring to continue.

“The economy is strong. Inflation is near our 2 per cent objective, and most people who want a job are finding one,” Powell said. “There is good reason to suspect that this strong performance will continue.”

While Powell noted recent increases in inflation, he said there was no sign it would move much above the Fed’s 2 per cent target and that “there does not seem to be an elevated risk of overheating.”

The Fed is widely expected to raise the benchmark interest rate to a range of 2 per cent to 2.25 per cent at its next meeting in late September, which would be the highest interest rates in a decade but not high by historical standards. The rate is currently at a range of 1.75 per cent to 2 per cent.

The Fed may raise rates again in December and possibly three more times in 2019, moves likely to draw Trump’s continued ire.

Powell devoted his speech Friday to defending the Fed’s actions against critics – both those who, like Trump, say the Fed is raising rates too quickly and those who say the Fed is moving too slowly.

Several protesters from the progressive group Fed Up stood outside the conference room where Powell delivered the speech. Much like Trump, they say raising rates again will harm working people’s chances of getting jobs and better pay. The protesters wore green T-shirts reading “The Fed wants more of us unemployed.”

Hiking rates rapidly could crimp, or even eventually end, the current expansion, as business and consumers stop borrowing and spending. Leaving rates too low for too long runs the risk of creating a bubble in the stock market and causing the economy to overheat, which could trigger a recession.

While Trump has been critical of the Fed, many on Wall Street and in the wider business community are supportive of his leadership of the central bank and his decisions on interest rates. Nearly 8 out of 10 business economists at major corporations said the Fed’s current actions are “about right,” according to a survey of 251 economists earlier this month by the National Association for Business Economics.

“Powell is a master of plain English and his speech reinforced that neither concerns about trade, Turkey or Trump would derail the Fed’s path to additional rate hikes for the remainder of 2018,” said Bob Baur of Principal Global Investors, referencing both the president’s attacks and the recent economic instability in Turkey.

In his remarks, Powell walked through tumultuous periods of the past, such as the rampant inflation of the 1970s and the 2008 financial crisis, and he made the case that central bankers have learned from these mistakes – and evolved their thinking and models accordingly.

“I am confident that the FOMC would absolutely ‘do whatever it takes’ should inflation expectations drift materially up or down or should crisis again threaten,” he said.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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