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First Cut: New orders for durable goods get a bounce higher on transportation, but elsewhere are soft

New orders for durable goods were up 2.1% in July from June after a minimal downward revision to up 1.8% in June from May (previously up 1.9%). The increase was almost entirely due to a bounce higher in transportation of up 7.0% that reflected an increase for motor vehicles (up 0.5%), nondefense aircraft (up 47.8%), and defense aircraft (up 34.4%). Excluding transportation, orders were down 0.4%.

Boeing reported a total of 31 new orders for July, an increase of 22 from June and the best activity in five months. Nonetheless, orders for aircraft — especially the troubled 737 MAX model — are lackluster at best for Boeing. The Paris Air Show in June did not see any substantive contracts closed. There are two more major air shows this year — Moskow at the end of August and Dubai in November — that could help future months, but slow global growth and greater worries about a recession could stymie any possible rebound.

Although back-to-back gains in the headline look good on the surface, these mask reliance on a single sector to provide an appearance of growth. “Core” durables orders — orders less civilian aircraft capital goods and defense capital goods — were down 3.8% in July after up 1.8% in June and a meager 0.1% gain in May. It is fairly typical for durables orders to alternate between firmer and softer readings. However, the July data comes at a time when surveys of manufacturing for July and August point to weakness in orders and a run down in order backlogs. There may be in the way of fresh orders to invigorate the August data.

Shipments declined 1.1% in July, suggesting that order backlogs have been diminished and new orders are insufficient to take up the slack. Inventories were up 0.4% in July, an increase that bears watching if businesses are concerned about a buildup in stocks in advance of a possible recession. Unfilled orders were little changed at up 0.1%.

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