The Latest Durable Goods Report: Positive But Sluggish in a Key Area

By at 26 August, 2019, 8:58 pm

by Raymond J. Keating – 

The durable goods report for July from the U.S. Census Bureau pointed to overall growth. However, there’s some sluggishness in a key measure of business investment.

The topline number estimated that durable goods new orders in July grew by 2.1 in July, which was up from 1.8 percent in June and from declines in April and May.

However, Census also noted, “Excluding transportation, new orders decreased 0.4 percent. Excluding defense, new orders increased 1.4 percent.”

What about capital goods investment? Overall, capital goods new orders grew by a robust 6.2 percent, coming on the heels of growth being 1 percent in June, and big declines in May and April. And again, after big declines in April and May, nondefense capital goods orders grew by 5 percent in June and 5 percent in July.

Those are positives, but the news became far more tepid in looking at a key measure – that is, nondefense capital goods excluding aircraft orders – of private investment in equipment and software. Nondefense capital goods excluding aircraft orders grew at a sluggish 0.4 percent in July. That followed on downgraded increases for June (from 1.9 percent to 0.9 percent) and May (from 0.3 percent to 0.2 percent). That all followed on a big drop in April.

In terms of the year-to-date percent change, this investment measure is up by a mere 1.5 percent. And as noted in the following chart, investment in equipment and software has been sluggish for the past year.

Source: Federal Reserve Bank of St. Louis, FRED

Investment drives innovation, and economic, income and job growth. Recent data on durable goods orders and GDP (see SBE Council’s analysis) indicate that business investment is a real concern for the short and long-run well-being of our economy. For good measure, the GDP numbers show troubling numbers on trade.

In the end, questions on both investment and trade data come back to costs and uncertainties being imposed by President Trump’s trade policies. Make no mistake, the biggest positive step for the economy that could be taken right now is to reverse course on trade policy, and having the U.S. return to its traditional role of leading the world on free trade in both words and deeds.

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


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