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Economy in Brief

U.S. Durable Goods Orders Rose. Less Transportation Orders Jumped
by Tom Moeller July 25, 2008

Orders for durable goods rose 0.8% last month and the increase followed a 0.1% uptick during May. Consensus expectations had been for a 0.4% decline during June. The figures of late, however, have been very much influenced by weakness in the transportation sector. Less transportation orders popped 2.0% during June and they have risen 6.2% during the past twelve months.

Lower orders for aircraft & parts dragged the June orders total down with a 20.3% decline (-30.4% y/y). That drop reflected an 8.6% shortfall (+53.6 y/y) in defense orders as well as a 25.1% drop (-45.2% y/y) in nondefense orders.

Orders for nondefense capital goods fell 3.2% last month but this decline also reflected weakness in aircraft orders. Less aircraft, nondefense capital goods orders rose 1.4% during June and these orders have risen 1.6% since yearend. The y/y gain of 5.5% compares to a 2.7% decline during all of last year. During the last ten years there has been an 80% correlation between the y/y gain in nondefense capital goods orders and the rise in equipment & software spending in the GDP accounts. The correlation with capital goods shipments is, as one would expect, a larger 92%.

To the upside during June were primary metal orders. They surged 5.1% and are up 10.7% this year, 22.7% y/y. Orders for machinery recovered most of the prior month's decline with a 2.3% (11.8% y/y) rise during June. Year-to-date machinery orders are, however, only near last year's rate of gain with a 1.6% rise after last year's 0.6% uptick.Orders for computers & related products slipped 0.5% but they are up 1.1% so far this year. New orders for communications equipment reversed all of the prior month's rise with a 4.4% decline and they are down 4.7% so far this year.

Overall shipments of durable goods rose 0.5% and made up about half of the May decline. Less transportation shipments recovered all of the May decline with a 0.2% (2.6% y/y) uptick.

Inventories of durable goods rose 0.5% during June, about as they did during the prior two months. Year-to-date inventories increased 3.6%, about the same as they did last year. Less transportation inventories are up 2.5%, about as they were last year.

NAICS Classification June May Y/Y 2007 2006 2005
Durable Goods Orders 0.8% 0.1% -1.1% 1.4% 6.2% 10.2%
    Excluding Transportation 2.0% -0.5% 6.2% -0.3% 9.1% 9.1%
Nondefense Capital Goods -3.2% 0.2% -5.7% 3.5% 9.4% 17.3%
 Excluding Aircraft 1.4% -0.1% 5.5% -2.7% 10.7% 11.6%
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