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Economy in Brief

U.S. Durable Goods Firm Despite Volatile Aircraft
by Tom Moeller August 24, 2006

New orders for durable goods backpedaled 2.4% last month after an upwardly revised 3.5% surge during June. Consensus expectations had been for a 0.5% dip.

Again, volatile orders for nondefense aircraft & parts provided much of the volatility with a 10.0% (+0.75 y/y) drop following a 7.3% June rise. Orders for defense aircraft offset some of last month's decline with a 9.0% jump (29.0% y/y).

Orders for motor vehicle & parts also were weak last month and fell 7.0% (-4.5% y/y).

Durable goods orders less the transportation sector altogether added 0.5% to a 2.2% July increase that was double the increase estimated initially.

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 added 0.2% to the upwardly revised 2.1% June gain. Less aircraft, July orders jumped 1.5% after a 1.4% spike the month earlier which was revised up from 0.4%. 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.

Orders for computers & electronic products surged 4.6% (18.0% y/y after a 6.7% June gain (revised from 3.4%). Computer orders jumped 9.1% (12.2% y/y) though orders for communications equipment fell 10.5% (+8.3% y/y). Machinery orders jumped again, by 1.9% (18.5% y/y), while orders for electrical equipment & appliances slipped 0.7% (+14.8% y/y).

Shipments of durable goods dropped 1.3% (+7.9% y/y) though shipments less the transportation sector rose 0.6% (11.3% y/y). 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 rose 1.4% (20.1% y/y) as unfilled orders for nondefense aircraft & parts rose another 1.4% (50.9% y/y). Unfilled orders less transportation nevertheless jumped 1.8% (16.2% y/y).

Durable inventories jumped 1.0% (5.4% y/y) and less the transportation sector, inventories also rose 0.9% (5.8% y/y). The inventory to sales ratio outside of the transportation sector rose slightly to its highest level since April.

NAICS Classification July June Y/Y 2005 2004 2003
Durable Goods Orders -2.4% 3.5% 9.7% 9.0% 6.4% -0.6%
    Excluding Transportation 0.5% 2.2% 14.6% 9.4% 7.6% -1.7%
Nondefense Capital Goods 0.2% 2.1% 11.1% 21.4% 5.6% -3.4%
 Excluding Aircraft 1.5% 1.4% 13.1% 12.3% 2.8% -2.0%
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