May 26, 2017 – Durable goods orders, which are orders to buy products that are expected to last at least three years, indicates how busy factories will be in the near future. As the name suggests, durable orders provide a look into demand for equipment along with other big-ticket purchases, such as vehicles and appliances. An increase in capital spending and consumer purchases indicates an increase in business investment and personal consumption in GDP.
New orders for durable goods fell 0.7% in April to 231.2 billion, above expectations of a -1% change after March had an upward revision to 2.3%. New orders are now up 0.9% year-over-year. Volatile aircraft orders were down 9.2% but are not entirely to blame as ex-transportation was weak, falling 0.4% in April when expectations were +0.4%. Core capital goods orders were unchanged since the previous month’s revision to 0.0%, but are up 2.9% year-over-year. Shipments were down 0.3% in April, led by transportation equipment dropping 0.5%.
Inventories increased 0.1%, following the upward trend for the past 10 months. With shipments down the inventory/shipments ratio climbed to 1.69, meaning more goods are produced but not sold than in the previous months. If this turns into a trend, it could hurt the quarters GDP since business investment is calculated using shipments less aircraft. Last month was not the best performance for durable goods; lackluster foreign demand could be the culprit. Even with manufacturing numbers being strong, this might not be reflected in durable goods since they are so erratic.