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Economy in Brief

U.S. Durable Goods Orders Surged
by Tom Moeller July 27, 2006

New orders for durable goods surged 3.1% in June after an upwardly revised 0.3% increase during the prior month. Consensus expectations had been for a somewhat lesser 2.0% jump.

An 8.8% rise in orders for nondefense aircraft & parts recovered not quite half of the 19.2% drop during May. Orders for defense aircraft jumped 12.9% (25.4% y/y).

Less the transportation sector altogether durable goods orders rose a firm 1.0%.

During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.

Orders for nondefense capital goods recovered nearly all of the prior month's decline with a 1.3% gain. Less aircraft, orders rose a more moderate 0.4% during June but the prior month's increase was upwardly revised to 1.3%. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment & software from the GDP accounts.

Higher orders for computers & electronic products led last month's strength with a 3.4% (0.8% y/y) spurt though computer orders alone rose just 1.5% (-2.3% y/y) after a downwardly revised 3.0% slip during May. Machinery orders slipped 0.3% (+10.5% y/y) after an upwardly revised 4.3% May increase. Orders for electrical equipment & appliances fell 1.0% (+15.0% y/y) but the prior month was very much upwardly revised to show a 2.7% increase.

Shipments of durable goods ticked up 0.1% (8.4% y/y) after an upwardly revised 3.0% May jump. Shipments less the transportation sector rose 0.4% (9.9% y/y) but the May jump was revised up to 2.1%. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.

Order backlogs gained 1.7% (19.4% y/y) again reflecting the strength in nondefense aircraft & parts (53.7% y/y). Unfilled orders less transportation gained another 1.3% (14.1% y/y).

Durable inventories rose 0.6% (4.9% y/y) after an upwardly revised 0.7% May rise. Less transportation inventories also rose 0.6% (5.4% y/y). The inventory to sales ratio outside of the transportation sector rose slightly.

NAICS Classification June May Y/Y 2005 2004 2003
Durable Goods Orders 3.1% 0.3% 5.8% 9.0% 6.4% -0.6%
    Excluding Transportation 1.0% 1.5% 9.1% 9.4% 7.6% -1.7%
Nondefense Capital Goods 1.3% -1.9% 3.5% 21.4% 5.6% -3.4%
 Excluding Aircraft 0.4% 1.3% 7.7% 12.3% 2.8% -2.0%
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