U.S. Durable Goods Orders Soar

New orders for durable goods soared 5.5% in May, lifted by aircraft & parts orders which more than doubled m/m. Consensus expectations had been for a 1.5% rise.

The 125% surge in orders for aircraft raised transportation equipment orders by 21.2%. A 0.2% (-1.6%) gain in motor vehicles & parts also contributed.

Less transportation durable orders fell 0.2% (+6.6% y/y) for the third slight decline in the last four months. Computer & electronic equipment orders fell 1.2% (+5.2% y/y), the second consecutive monthly decline, and machinery orders fell 1.9% (+8.7% y/y). Electrical equipment orders rose 0.3% (4.2% y/y) and "other" orders rose 1.8% (6.3% y/y).

Orders for non-defense capital goods rose 14.5% on the strength of the orders received by Boeing. Less aircraft capital goods orders fell 2.3% and shipments rose just 0.2% (12.2% y/y). During the last four months shipments have fallen 1.1%.

Durable inventories rose 0.3% (8.7% y/y) following no change in April. Less transportation inventories also rose 0.3% (9.8% y/y).

Unfilled orders jumped 1.9% (7.6% y/y) but outside of the transportation sector backlogs fell slightly (+7.7% y/y). The ratio of backlogs to shipments outside of transportation has been moving erratically sideways since early last year.

How Long Is Long Term Investment? from the Federal Reserve Bank of Kansas City is available here.

New single-family home sales in May rose 2.1% m/m to 1.298M. The figure was slightly below the record level reached last October but sales during prior months were revised lower. Consensus estimates had been for sales of 1.32M.

Sales in the Northeast in May gave back all of the prior month's spurt (-28.2% y/y) and sales in the South fell 0.8% (+3.8% y/y), down for the fourth month this year. Sales in the Midwest rose 22.9% (28.2% y/y) to a record high and sales out West rose 1.7% (0.8% y/y).

The median price of a new single family home fell 6.5% to $217,000 (+2.5% y/y), the lowest level since last September.

The figures from the Census Department reflect homes sold.

Are you aware that Mexico runs a trade deficit? In May, this was $434.6 million; in 2004, it averaged $726.7 million a month. Over the past year, exports, not seasonally adjusted, have grown 13.3%; while higher petroleum exports are part of this growth, nonpetroleum exports have risen 12.4%.

So Mexico is yet another instance in which conventional wisdom would suggest that a specific nation must surely have a huge trade surplus: don't "we" import a lot from Mexico, as "we" do from China and India? But contrary to popular belief, those are both countries which have near balances in their trade accounts, not big surpluses.

Mexico does run a substantial surplus with the US, recently around $5 billion monthly. US purchases account for about 87% of Mexican exports, a substantial part of which involves the "maquiladora" trade, the plants near the US border which import parts and components for products that they assemble and re-export.

While the shares of Mexican trade connected to the US and/or to the maquiladora operations are large, Mexico does engage other countries and purposes. Particularly in the past couple of years, Mexican imports from non-US countries have grown rapidly: In March (the latest available), they were $8.2 billion, almost half of that month's total goods imports. In 2002, these imports averaged just $5.1 billion monthly, 36.5% of imports. In the more recent periods, Brazil, China and the EU have accounted for notable parts of the Mexico's import business. Further, consumer goods imports have been expanding. Over the last 12 months, they have grown by 17.4%, compared with an increase of 14.3% for total imports. Capital goods imports have also strengthened. These upturns coincide with the run-up in oil prices and the consequent surge in Mexico's petroleum exports. Quite possibly, these additional oil revenues are being recycled into the world economy, perhaps into countries other than the ones who bought the oil.