August 24, 2022 | 09:36
Durable Goods: Look Past the Headline
U.S. durable goods orders fell short of expectations, remaining unchanged in July. Looking past that disappointing headline, though, reveals some upbeat details for the U.S. economy, which are likely to help keep the candor more hawkish when Chair Powell speaks in Jackson Hole later this week. For one thing, June orders were revised a few ticks higher to a sturdy 2.2% gain. Moreover, excluding transportation, new orders were up 0.3% in July, following a similar increase in June. A big reversal in defense aircraft and parts weighed down that subsector, while a more pedestrian 0.2% rise in motor vehicles and parts (previously 1.7% in June) wasn't enough to overcome the slowdown in defense spending. Core capital goods orders also advanced 0.4% after rising an upwardly revised 0.9% in June, which will underpin production in the second half of the year.
When it comes to early reads on Q3 GDP, the 1.1% jump in nondefense capital goods shipments in July sets business equipment investment off to a strong start for the quarter. If that level of activity can persist through the challenging operating environment, we could see investment pick up relative to its weak showing in Q2.
Bottom Line: Despite all the recession talk, businesses are still spending in some areas, including fabricated metals, computers and electronic products, machinery, and communications. We still expect the economy to remain weak in the second half of the year amid rising rates and persistent inflation, but this report highlights some upside risk to our Q3 GDP call of 0.6% annualized.