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James Knightley, chief international economist at ING, points out that the US April durable goods orders report also posted a steep decline, led by a 25.1% drop in the volatile aircraft component.

Key Quotes

“The core figure, which strips out aircraft and defence orders, fell for the first time since December, while there were sizeable downward revisions to recent orders data. The chart below points to investment spending having stalled in 2Q19.”

“International supply chains and the prospect of tariff hikes for foreign components saw businesses run up significant inventory levels in recent quarters. Inventory building contributed 2.3 percentage points of 3Q18’s 3.4% GDP growth, 0.1 percentage points of 4Q18’s 2.2% growth and 0.65 percentage points of 1Q19’s 3.2% growth. It now appears that firms want to offload a large proportion of this stock and are ordering less as a result. As such, a run down in inventories will also drag headline 2Q GDP growth lower.”

“This will, in turn, mean weak manufacturing output in coming months and could stall employment gains, too.”