The Latest Durable Good Report

By at 24 August, 2018, 2:18 pm


by Raymond J. Keating-

The U.S. Census Bureau’s latest durable goods report has two stories to tell.

First, it’s important to keep in mind that durable goods orders serve as a kind of leading indicator on the economy, specifically, gauging both business and household confidence when it comes to making investments. It also offers a look at the direction for manufacturing.

Total durable goods orders in July 2018 were up by 9.2 percent compared to July 2017. That’s welcome, robust growth.

However, it also must be noted that durable goods orders have declined in three of the last four months, including in July, and that the July level was in effect at the same level as February’s of this year.

Drilling down a bit, what’s going on with capital goods orders, which are a proxy for general business investment? The good news is that capital goods orders in July were up by a strong 6.7 percent versus the same point last year.

But there’s another “but” here. Capital goods orders also were down in three of the last four months, and the July level actually was below the February level.

Finally, we need to look at nondefense capital goods excluding aircraft orders, as these serve as a gauge for what private investment in equipment and software will look like in the GDP numbers.

The news here is good. Compared to July 2017, the July 2018 level was up by 8.5 percent. For good measure, growth has been steady going back to the start of 2017, with monthly data showing growth in 15 of 19 months. And most recently, we’re on a stretch of growth for four straight months.

So, the July durable goods report was somewhat conflicted. It generates some concerns looking ahead, but the nondefense capital goods excluding aircraft trend serves as a strong push back in a positive direction.

As for policy, the biggest uncertainty looming is U.S. trade policy. The further the U.S. goes down the path of raising tariffs and imposing quotas, with other nations retaliating, the greater the restraint on business confidence and investment.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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