Volatility Continues in Durable Goods in May

Jon C. Ogg

The monthly reports on durable goods can be quite volatile, disappointing in a strong economy or soaring even in a bad economy. There is a way to smooth out some of the monthly volatility and that gives a more stable core reading that shows how the core economy is doing aside from transportation and orders for jets and military equipment.

The U.S. Commerce Department reported that durable goods were down less than expected, with a 0.6% drop, in the month of May. This represents a $1.4 billion drop to $248.8 billion for the month. Dow Jones was calling for a drop of 1.0% in May’s durable goods.

Orders for non-military capital goods, excluding aircraft, fell by 0.2%, versus the 0.5% drop expected. This figure rose in April by some 2.3%. Shipments of those goods fell by 0.1% rather than a 0.3% expected gain after the April report was revised to a gain of 1%.

Orders for machinery and communications equipment were higher in the month of May, while civilian aircraft orders put some pressure on the total bookings in May. Orders for primary and fabricated metals were also lower in May.

To prove how military orders can swing the barometer here, defense capital-goods orders rose by 15.1% in May. Nondefense new orders for capital goods in May were down $1.6 billion (or 2.0%) to $77.1 billion, and shipments increased $2.3 billion (or 3.0%) to $76.4 billion.

Several issues are starting to meet in the mix here and will be creating some extra volatility in the coming reports. Business spending is supposed to be higher on the heels of lower corporate taxes and that is expected to be GDP-positive. The tariff side of the equation has yet to play out, but economists and business managers are watching how this impacts prices and profitability in orders quite closely.