Data released today showed a decline in Durable Goods Orders in May of 1.3%. Analysts at Wells Fargo point out the drop in durable goods orders is mostly aircraft weakness amid Boeing’s struggles and explained the details were better with upticks in core capital goods orders and shipments, but the factory sector remains under pressure.
Key Quotes:
“Durable goods orders for the month of May fell 1.3%, a full point worse than consensus expectations. The miss piles on to the recent run of worse than expected data coming from a broad swath of the economy, including the manufacturing sector but also housing and the consumer. Looking under the hood, however, suggests that capital spending is not falling off the rails, but equipment spending is still set to decline in the second quarter.”
“Durable goods orders are particularly prone to miss forecasts based on the volatility in the sizeable aircraft sector. Boeing’s recent challenges with their 737 MAX model have amplified the importance of the transport sector on a month-to-month basis. Net cancellations led to nearly a 30% drop in nondefense aircraft orders over the month. That followed almost a 40% decline the previous month and obscures a modestly firmer trend in underlying core orders.”
“While core capital goods orders suggest businesses are not fully retrenching as they await clarity on trade and contend with slowing growth abroad, equipment spending still looks set to contract this quarter.”
” The upshot is that the pipeline for manufacturing remains weak, but is likely not as dire as recent regional PMIs or total durable goods orders suggest. The tabling of Mexican tariffs points to some room for improvement, but without a resolution to trade disputes with China, we expect factory activity to continue to languish amid the resulting uncertainty and floundering global growth.”
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