U.S. Durable Goods Orders Unchanged in May; Downtrend Underscores Factory Sector Woes

New orders for durable manufactured goods matched expectations and were unchanged last month. The result followed a downwardly revised 1.0% drop in April. The year-to-year change in orders fell to -1.5% after a modest 1.4% rise last year, a 6.2% rise in 2006 and 10.2% growth during 2005.

Weakness in orders for transportation equipment continued to account for much of this year's weakness in total durables orders, notwithstanding a 2.6% rise last month. Orders for transportation equipment are down at a 16.9% rate so far this year. Lower orders for motor vehicles & parts account for much of that weakness with a 20.5% y/y decline after last year's 4.7% drop. But orders for nondefense aircraft have eased as well and the y/y growth rate fell to -0.4% in May after a 44.9% increase during 2007. Less the transportation sector overall orders rose 0.8% this year but that followed a 0.3% decline in 2007.

Orders for nondefense capital goods overall rose 0.4% in May lifted by orders for nondefense aircraft which rose 10.3%. However the momentum here has changed and y/y growth in May aircraft orders fell to -0.4% after last year's 44.9% surge. Less aircraft capital goods orders fell 0.8% and they are down 1.1% (AR) so far this 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%.

Orders for machinery fell 5.3% (+8.1% y/y) and that reversed all of an April increase. Year-to-date machinery orders fell 4.8% after last year's 0.6% uptick and 9.1% growth during 2006. New orders for electrical equipment, appliances & components rose 1.5% but y/y growth of 2.7% followed last year's moderate 3.3% gain.Orders for computers & related products just offset an April decline and rose 2.0% (-2.4% y/y). New orders for communications equipment rose 2.4% last month but an April increase was revised away and these orders are down 7.4% year-to-date.

Overall shipments of durable goods fell 1.1% and are unchanged this year. Less the transportation sector shipments fell 0.2% but that belies a 6.1% year-to-date increase. That is due mostly to a 21.2% rise in shipments of primary metals.

Inventories of durable goods rose 0.4% during May and year-to-date inventories have increased 3.0% following last year's 3.5% rise. Less transportation, inventories rose 0.3% last month. The 2.1% rise so far this year follows 1.4% growth last year.

Has Inventory Volatility Returned? A Look at the Current Cycle from the Federal Reserve Bank of New York can be found here.