US Durable Goods Orders: Excluding aircraft, fairly broad-based strength - Wells Fargo

Data released today, showed that durable goods orders fell 1.7% in July, against expectation of a 0.5% slide. Analysts at Wells Fargo, point out that aircraft orders accounted for most of the weakness though, with bookings off more than 34 percent in both civilian and military orders. 

Key Quotes: 

“Orders for durable goods at U.S. manufacturers fell 1.7 percent in July, as a slip in monthly orders previously reported at Boeing presaged the drop of more than a third on both the defense side and the civilian side. Shipments of civilian aircraft were down again, and defense aircraft shipments were up; both developments here in July are in-line with recent trends.”

“When you strip away aircraft orders, there was fairly broad-based strength, but that is not to say that we can safely look past the weakness.”

“With orders in other categories still mostly positive and unfilled orders of nondefense aircraft still elevated, we maintain our call for real equipment spending to rise in Q3.”

“Forward-looking measures of business spending, like orders for core capital goods, which are now growing at a 10.8 percent three-month annualized pace, suggest that any soft patch in Q3 spending may be short-lived.”

“The pace of inventory investment can occasionally be a major swing factor in the GDP report and the table is set for that to be the case here in the third quarter. Our current estimate for the annualized change in Q3 inventories is just $15 billion, a well-below trend number. But coming on the heels of a $27.9 billion drawdown in inventories in the second quarter, even that modest increase in Q3 is sufficient for inventories to add almost a full percentage point to headline GDP.” 

“On balance, businesses are still contributing to growth, even at this late stage of the cycle.”