Troubling Signals: The Latest Durable Goods Report

By at 27 June, 2024, 3:14 pm

by Raymond J. Keating –

The U.S. Census Bureau just published its latest “Durable Goods Manufacturers’ Shipments Inventories and Orders” report and it pointed to new orders for manufactured durable goods in May increased by 0.1 percent, which followed on an increase of 0.2 percent in April (revised down).

While up for four consecutive months now, the increases have shrunk in each.

Meanwhile, the story regarding new orders for capital goods – that is, goods that make other goods – was most troubling. New orders for capital goods actually declined by 0.5 percent in May, after a decline of 0.8 percent in April.

New orders for nondefense capital goods excluding aircraft is important because it is an indicator for private investment in equipment and software in forthcoming GDP data. These new orders declined by 0.6 percent in May, after growth of 0.3 percent in April and a decline of 0.2 percent in March.

For good measure, durable goods data is in nominal dollars, not inflation-adjusted dollars. Therefore, gains over time must be reduced in real terms. Fortunately, at least for May, inflation was flat.  But, as noted in the following chart, new orders for nondefense capital goods excluding aircraft – after an immediate, robust post-pandemic recovery, have been flat since August 2022 in nominal terms – again, declining once inflation is considered.

Source: Federal Reserve Bank of St. Louis, FRED

In the end, this is not a positive durable goods report, and serves to raise further questions on the state of the economy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.

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