Durable Goods Orders In May Better Than Expected

by: Doug Short

The June Advance Report on May Durable Goods was released yesterday morning by the Census Bureau. Here is the Bureau's summary on new orders:

New orders for manufactured durable goods in May increased $8.0 billion or 3.6 percent to $231.0 billion, the U.S. Census Bureau announced today. This increase, up three of the last four months, followed a 3.6 percent April increase. Excluding transportation, new orders increased 0.7 percent. Excluding defense, new orders increased 3.5 percent.

Transportation equipment, also up three of the last four months, led the increase, $6.9 billion or 10.2 percent to $74.3 billion. This was led by nondefense aircraft and parts, which increased $6.3 billion.
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The latest new orders number at 3.6 percent was above the Investing.com forecast of 3.0 percent. Year-over-year new orders are up 7.6 percent, the highest YoY in ten months. If we exclude transportation, "core" durable goods were up 0.7 percent MoM and 2.8 percent YoY. If we exclude both transportation and defense, durable goods were up 0.4 percent MoM but up 3.4 percent YoY.

The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two.

An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

Here is an overlay with GDP — another comparison I like to watch closely.

The next chart shows the percent change in orders with and without transportation since the turn of the century.

Now let's exclude defense orders.

And finally, let's look at core durable goods orders, excluding both Transportation and Defense.

In theory the durable goods orders series should be one of the more important indicators of the economy's health. But its susceptibility to major revisions of the previous monthly data suggests caution in taking the data for any particular month too seriously.