August 24, 2023 | 09:19
Durable Goods Hit Some Turbulence
U.S. durable goods orders lost altitude, falling 5.2% in July as expected. The lofty June advance was also taken down a few ticks to 4.4% (previously 4.7%). The reversal marks the first decline in new orders since February. Aircraft bookings fell back to earth (after a gravity-defying surge in June), which sent transportation down 14.3%.
However, excluding transportation, orders moved up 0.5% (a few ticks above June's revised 0.2% advance). Machinery and communications led the way with some solid gains. With continued investment spurred by the Inflation Reduction Act, it's also no surprise that electrical equipment rose to yet another record high. Meanwhile, computers fell 2.2% after managing a modest increase in June.
Core capital goods orders, a gauge for business investment, edged up 0.1%, while the prior month was revised down to now show a 0.4% decrease (prev. +0.1%). Overall, that points to slowing business investment ahead. The control measure of core shipments (incl. aircraft)—an input for GDP—dipped 1.1%, marking back-to-back declines. That flags a cooling in business investment spending in the third quarter after a double-digit advance (annualized) in the previous quarter.
Meanwhile, a separate report showed initial jobless claims fell for the second straight week, down 10k to 230k in the week ending August 19. All signs there point to the labour market remaining tight when August payrolls are released (next Friday).
Bottom Line: Although Chair Powell will likely take comfort from cooling business spending when he speaks at Jackson Hole on Friday, the continued resilience of the U.S. economy signals that his speech is likely to reinforce the theme that the FOMC may keep rates higher for longer.