Durable Goods Orders Surge In July - August 24, 2012
The good news keeps coming on the economy. Specifically, after the reports of respective gains over the past two days in sales of existing homes and new residences, the Commerce Department has just reported that orders for durable goods jumped by 4.2% last month. That report, which was notably better than the forecast increase of 3.0%, followed a revised gain of 1.6% in June. Durable goods orders, a notoriously volatile series, are now up for three months in a row. Initially, the June estimate had shown a decline of 2.2%. So, this was a really big positive month-to-month swing.
Manufacturers' orders for durable goods, which are products designed to last for at least three years, were led by a 12.8% increase in motor vehicle and parts orders, the best gain in this category in a year, as Detroit continues to come back in a big way. The auto industry has been one of the key drivers so far in this on-again, off-again economic recovery.
To be sure, not all the news was good, as orders for non-defense capital goods fell back last month, decreasing by 3.4% in July. The industrial sector also has been supportive for much of the year, though, of late, it had been more of a mixed bag than not. This latest result, however, along with the sharp upward revision for June, left few doubts that the industrial sector is now on the mend. That is important, as the Federal Reserve is preparing for its next FOMC meeting in mid-September. Just yesterday, a pair of Federal Reserve Board governors seemed to suggest that contrary to some earlier expectations, the central bank was now unlikely to take any additional monetary action in the weeks to come. The report on durable goods orders appears to lessen the case for Fed action even further.
Individually, in addition to the markets cited above, orders were up in primary metals, computers, transportation equipment, and capital goods. Conversely, orders were off in machinery, fabricated metals, and communications equipment.
Taken as a whole, the report was solid and most encouraging, and it strengthens the case, we would suggest, that third-quarter GDP growth might well exceed the tepid 1.5% second-quarter gain.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.