Weak commercial aircraft bookings weigh on US factory orders in July

U.S. factory orders decreased 1.3% in July, primarily due to a substantial 32.7% decline in commercial aircraft bookings. However, underlying business equipment spending remained strong, with orders for non-defense capital goods excluding aircraft rising 1.1% and shipments gaining 0.7%, indicating sustained capital investment activity early in the third quarter despite broader manufacturing headwinds.

Analysis

U.S. factory orders declined 1.3% in July, a figure primarily skewed by a 32.7% plunge in volatile commercial aircraft orders. Despite this headline weakness, which was slightly better than the consensus forecast of a 1.4% drop, underlying data indicates sustained strength in business investment at the start of the third quarter. Orders for non-defense capital goods excluding aircraft, a critical proxy for business spending plans, rose a solid 1.1%, while shipments of these core goods increased 0.7%. This suggests the momentum from the second quarter, where equipment spending contributed significantly to the 3.3% annualized GDP growth, has continued. Sector-specific data reinforces this view, with rebounds in orders for motor vehicles (+1.9%), machinery (+1.9%), and electrical equipment (+1.9%). This resilience in core capital expenditures persists despite broader manufacturing headwinds, including a sixth consecutive month of contraction in the ISM manufacturing PMI and ongoing uncertainty related to trade tariffs.

Key Decisions for Investors

• Investors should look past the volatile, aircraft-driven headline decline and focus on the 1.1% rise in core capital goods orders as a more reliable signal of robust underlying business investment.
• The data suggests sector-specific strength; consider opportunities in machinery, automotive, and electronics manufacturers, which are showing positive order growth, while exercising caution with aerospace suppliers sensitive to commercial booking volatility.
• Monitor the divergence between strong core capital spending and the contracting broader manufacturing PMI, as persistent trade policy uncertainty remains a key risk that could eventually dampen corporate investment.