Transportation Bright Spot in US Durable Goods Report

Declines in several manufacturing sectors point to continued sluggish economy.

Led by transportation equipment, new orders for manufactured durable goods increased $9.4 billion in July to $230.7 billion, a 4.2% increase from June, the U.S. Census Bureau reported today.

The increase occurred for the third month in a row and followed a 1.6% increase in June.

Transportation equipment orders increased $9.9 billion, or 14.1%, to $80.4 billion. Without this sector, new orders for durable goods actually decreased 0.4%.

“The bright side of the report was that motor vehicle orders surged 12.8% in July,” observed Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). “Consumers and firms need to change aging autos and trucks, for which replacements were postponed during the long recession and sluggish recovery and expansion. In addition, aerospace production continues to ramp up, which benefits many manufacturing industries directly and indirectly."

But Meckstroth noted that there were "major declines in the orders for machinery, communications equipment, and electrical equipment and appliances in June and July." He said the gains in the past two months had come in large part from orders for civilian aircraft and parts.

"These are very long lead-time orders that are positions in a multiyear queue and do not reflect future production activity over the next three to six months," Meckstroth commented. "A more relevant indicator of the nearer term is nondefense capital goods orders excluding aircraft, which declined 3.4% in July and fell 2.7% in June. Order activity for these products is an important indicator of business confidence in the strength and direction of the economy."

Transportation also led the increase in shipments of manufactured goods in July. Transportation equipment shipments were up $5.4 billion, or 8.4%, while overall shipments increased $5.9 billion (2.6%) to $231.1 billion.

Inventories of manufactured durable goods also increased in July, up 0.7% to $369.3 billion.

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