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A Positive Sign for Manufacturers

The Commerce Department report on manufacturers’ new orders for durable goods showed a strong gain in July, the best month since January (Chart 1). Orders for durable goods jumped 4.4 percent following a 4.2 percent decline in June.

Durable goods are items meant to last three years or longer. A sizeable portion of the gain for the month came from nondefense aircraft and parts, which surged 89.9 percent during the month.  This category tends to be quite volatile. Total orders for nondefense aircraft for the first seven months of 2016 are still down 14.9 percent compared to the same period in 2015. Excluding all transportation equipment, durable goods orders rose 1.5 percent, matching the gain from January.

A key gauge of overall business investment, new orders for nondefense capital goods excluding aircraft, posted a 1.6 percent gain for July following a 0.5 percent increase in June.  However, this category is still down 4.3 percent for the year to date versus 2015.

The month-to-month volatility for these data make interpreting the results more challenging. Looking at the overall trends in the key components, total durable goods orders remain in a flat trend for the past three-and-a-half years while orders for nondefense capital goods excluding aircraft drift lower.  The story really comes back to what we have seen in the GDP data: A strong consumer is offsetting weak business investment. July’s bounce back may be the first month in a more favorable trend for capital goods, or it may just be volatility.  We’ll need more data to be sure.

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