US: Durable Goods Orders post small decline in July – Wells Fargo

Data released on Wednesday showed a mixed picture from the Durable Goods Orders report for July. According to analysts at Wells Fargo, the scant 0.1% decline in durable good orders is not as large a dip as had been expected. They explained the not-as-bad outcome is due in part to surging orders for autos and many old-line manufacturing categories.

Key Quotes: 

“This is only the second time since the initial reopening of the economy in May of last year that durable goods orders posted a decline. We were braced for a larger one. The scant 0.1% dip in orders for durable goods is remarkable after accounting for the fact that civilian aircraft orders fell by about half during the month.”

“Core capital goods orders were flat in July, but the run-up in goods consumption during the pandemic has resulted in a speedy rebound in orders to date. An upward revision to June data suggest orders are 9.2% ahead of their prior cycle peak through July. With some business demand being pulled forward last year to facilitate work from home and consumer spending transitioning back to services from goods, some weakness in demand is understandable. But we expect the need for businesses to replenish scant inventory levels to keep orders strong in coming months.”

“Shipments did pick up during the month with core capital goods shipments up 1.0%, which brought the three-month annualized growth rate of the three-month moving average to 12.1%. This is a positive indication of strong equipment spending in the third quarter, but as we've cautioned in recent months, the true pace of real equipment spending will likely be less impressive as orders and shipments are reported in nominal dollars. The recent run-up in prices, therefore will likely eat into some of the gain. Increases in shipments were broad based with all core shipment categories rising last month.”