New orders for durable goods rose 1.9% in June after rising 0.8% in May, the eighth increase in the past nine months. Total orders for durable goods increased by 12.2% compared to last year. June’s gains pushed total durable goods orders to $272.6 billion, the second-highest on record.
New orders for non-defense capital goods excluding aircraft, or core capital goods, a measure of investment in business equipment, rose 0.5% in June after rising 0.5% in May. Bookings rose 11.2 percent year-over-year to $73.9 billion, a new record.
However, the rapid rise in prices affected orders for capital goods. In real terms, after adjusting for inflation, real new orders for durable goods rose 1.2 percent in June, while real new orders for non-defense capital goods, one of AIER’s leading indicators, fell by 0.6 percent (see first graph). Real new orders for durable goods and real new orders for non-defense capital goods were below the level of January 2022 (see Chart 1 again).
Five of the seven categories shown in the Durable Goods report showed growth in nominal terms in June. Among the major individual categories, orders for transportation equipment led the way with a 5.1 percent increase, followed by electrical equipment and appliances with a 2.5 percent increase, and computers and electronics with a 1.5 percent increase. Finished metals rose 0.3%, while all other durable goods added 0.2%. In the transport equipment category, defense aircraft rose 80.6%, vehicles and parts rose 1.5%, and non-defense aircraft fell 2.1%. On the other hand, orders for primary metals fell by 1.1%, while orders for engineering fell by 0.2% (see second chart). Compared to last year, each major category shows growth.
Durable goods orders continue to grow strongly in nominal dollars, but after adjusting for rising prices, real durable goods orders are growing very slowly. Nominal new orders for capital goods are also rising rapidly, but in real terms the trend is flat or slightly declining. The outlook remains highly uncertain as sustained upward pressure on prices continues to distort activity and influence decision making. Despite the progress made, labor and material shortages continue to hold back production. In addition, the fallout from the Russian invasion of Ukraine and intermittent lockdowns in China continue to disrupt global supply chains. Finally, the Federal Reserve has stepped up the current cycle of tightening interest rates, raising the possibility of a policy mistake. The caution is justified.