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Economy in Brief

U.S. Durable Goods Orders Better Due To Transportation
by Tom Moeller August 24, 2007

New orders for durable goods during July gained an impressive 5.9% and the gain during the prior month was revised up slightly to 1.9%. Consensus expectations had been for a 2.0% rise in orders for last month.

During the last ten years there has been a 67% correlation between the y/y change in durable goods orders and the change in production of durable goods.

The rise in new orders less the transportation category for July, however, was a less impressive 1.3% ... less impressive especially since it followed a 2.5% flop in June.

Changing new orders for motor vehicles & parts caused much of this volatility with a 9.8% rise last month after a 0.7% decline during June. And the aircraft sector got into the act with a 13.0% rise last month which was roughly a third of the 31.4% spike during June.

Orders for nondefense capital goods rose 5.8% during July following the 6.4% June increase which was revised up slightly. (Orders in May fell 6.8%.) Still, excluding aircraft & parts July orders rose a modest 2.2% following two months of decline The y/y change is roughly zero. During the last ten years there has been an 84% 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 also have been volatile. They rose 7.4% (+1.8% y/y) after a little revised 2.8% June decline. Orders for just computers & related products fell 4.0% (-8.4% y/y) for the second month of sharp decline. Primary metals orders rose 7.9% (-0.5% y/y) but that only lifted orders back about to where they were in March. And electrical equipment orders fell for the third consecutive month (+0.2% y/y). Machinery orders were the strongest area with a 5.5% (4.4% y/y) increase following a 3.4% June gain.

Shipments of durable goods rose 3.8% (4.2% y/y) after a 1.1% June slip. Less the transportation sector, shipments made up declines during the prior two months with a 1.9% (1.3% y/y) increase. 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. The July increase less transportation amounted to 1.9% (1.3% y/y).

NAICS Classification July June Y/Y 2006 2005 2004
Durable Goods Orders 5.9% 1.9% 8.1% 6.3% 9.9% 5.3%
    Excluding Transportation 1.3% -2.5% 1.3% 7.6% 8.8% 7.9%
Nondefense Capital Goods 5.8% 6.4% 14.2% 10.6% 17.1% 5.7%
 Excluding Aircraft 2.2% -0.1% 0.2% 8.5% 11.1% 3.2%
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