Durable Goods Orders Perking Up

Jon C. Ogg

If there was a contest to find the one major government economic report that is the most volatile and unpredictable through good times and bad times alike, the durable goods report from the U.S. Department of Commerce would have to win the prize. These are the big-ticket items bought by businesses and consumers that are not immediately consumed and are generally kept for a period of years. After seeing some volatility in durable goods in prior reports, August turned out to be a strong month, and it may be strong enough to curb some of the pessimism in the gross domestic product (GDP) forecasts for the third quarter.

The level of new orders rose 1.7% in August to $232.8 billion, and July was revised to a −6.8% reading of $228.9 billion. Bloomberg had predicted just a 1.5% gain in August. If taken on a year-over-year reading, new orders were up by 5.1%.

Excluding transportation, the Commerce Department showed that new orders increased by just 0.2%. Bloomberg had projected a 0.4% gain here. One issue that may have hindered the result was that the July reading without transportation was revised upward to a gain of 0.8% from a preliminary view of a 0.5% gain.

Excluding defense, new orders increased by 2.2% in August, and transportation equipment led the increase with a $3.6 billion gain (up 4.9%) to $77.4 billion.

There is a core reading here that removes some of the volatility from defense and airplane orders. This measure showed a 3.6% gain in August, although July’s preliminary 3.5% gain was revised to a higher gain of 4.1%.

The factory sector did not seem to be affected at the national level by the impact of Hurricane Harvey in late August. If September holds up from Hurricane Irma in a similar fashion, then an earlier acceleration into year-end seems likely.

All in all, the August report on durable goods should have been well received by those hoping for higher growth and looking for strong GDP. The inventory-to-shipments ratio held pat at 1.69, a level that is considered to be lean on the inventory side, translating to strong production numbers ahead as we get closer to year-end.

There was a special note about hurricanes having an impact. Motor vehicles showed a return to growth at 1.5% in orders and up 1.9% in shipments. Communications equipment orders rose by 4.0%.

Each monthly report on durable goods is based on a survey from a panel of approximately 5,000 reporting units, which represents approximately 3,100 in the manufacturing sector. These reporting units may be divisions of diversified large companies, large homogenous companies, or single-unit manufacturers from 92 different industry categories.