U.S. Durable Goods Orders Slump 2.8% In July, Much Less Than Expected

U.S. durable goods orders declined 2.8% in July, a smaller drop than the 4.0% anticipated, primarily driven by a sharp 9.7% decrease in transportation equipment orders, particularly non-defense aircraft. However, core capital goods orders excluding aircraft, a key business spending indicator, rebounded robustly by 1.1% after a June decline, and orders ex-transportation surged 1.1%, significantly exceeding expectations. This indicates underlying strength in business investment, with analysts projecting continued gains in Q3.

Analysis

U.S. durable goods orders in July fell 2.8%, a decline that was significantly less severe than the 4.0% drop anticipated by economists. The headline figure was heavily skewed by a 9.7% plunge in the volatile transportation equipment category, specifically a 32.7% decrease in non-defense aircraft orders. The more telling metric, durable goods orders excluding transportation, revealed robust underlying economic strength, jumping 1.1% and substantially beating expectations for a 0.1% increase. This strength was broad-based, with notable gains in machinery, primary metals, and electrical equipment. Critically, orders for non-defense capital goods excluding aircraft, a key proxy for business investment plans, rebounded sharply by 1.1% after contracting 0.6% in June. Furthermore, shipments in this category, which directly inform GDP calculations, rose 0.7%, suggesting business equipment investment will positively contribute to Q3 growth, as supported by analysis from Oxford Economics.

Key Decisions for Investors

• Investors should look past the negative headline figure and focus on the significant underlying strength in core capital goods orders, which signals resilient business investment and corporate confidence.
• The data supports a constructive view on industrial sectors that drove the ex-transportation strength, such as machinery and primary metals, while warranting continued caution on the highly volatile commercial aerospace sector.
• Given that core capital goods shipments are a direct input for GDP, this report suggests a potential upside surprise to Q3 economic growth forecasts, which could temper bearish market sentiment.