New Durable Goods Orders Struggle to Regain Ground

By at 28 July, 2020, 1:24 pm

by Raymond J. Keating-

While the hole remains deep, after massive drop offs in both March and April, durable goods orders are trying to claw back with some growth in May and June, as evidenced the latest durable goods report from the U.S. Census Bureau. But when it comes to capital goods – that is, the goods used to produce other goods – decline largely re-emerged in June.

After declines of 16.7 percent in March and 18.3 percent in April, durable goods orders increased by 15.1 percent in May and 7.3 percent in June. Unfortunately, the June 2020 level of orders stood at 13.3 percent below a year earlier.

If we focus in on capital goods – again, effectively business investment in productive capacity – new orders in June were down by 16.5 percent. That came after an increase of 24.6 percent in May, a decline of 2.4 percent in April, and a drop of 29.8 percent in March.

That June drop included nondefense capital goods orders being off by 16.4 percent in June, after increases of 26.3 in May and 7.0 percent in April, while the decline in March came in at 35.4 percent.

Compared to a year earlier, capital goods new orders in June were down by 14.4 percent, and nondefense capital goods by 18.5 percent.

However, nondefense capital goods excluding aircraft new orders – which serves as a measure of private investment in equipment and software – grew by 3.3 percent in June, after an increase of 1.6 percent in May. Those small increases came after declines of 6.6 percent in April and 1.3 percent in March.

Compared to a year earlier, the June level of nondefense capital goods excluding aircraft new orders were off by 2.3 percent.

Source: Federal Reserve Bank of St. Louis, FRED

So, perhaps we can say that, at least when it comes to new orders of nondefense capital goods excluding aircraft, the damage thanks to the coronavirus pandemic and related shutdowns has been a little more limited.

Unfortunately, as noted in the above chart (with data not adjusted for inflation), this is not an area of investment that has experienced robust growth in recent times. Indeed, the hole is deep.

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


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