June 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 1.1% in May to 228.2 billion, below expectations of a -0.4% change after April’s downward revision to -0.9%. New orders are now up 2.7% year-over-year. Commercial aircraft orders fell 12%, along with defense aircraft orders down 31%. Core capital goods experienced a 0.2% decrease despite expectations of a 0.5% increase. Even with vehicles bringing in a strong 1.2% gain, shipments were down 0.2% in May.
Aircraft order’s extreme volatility contributed the most to the decrease of new orders for durable goods for May. However when we take out transportation we see an increase of 0.1% for month-to-month change and an increase of 5.5% year-to-year increase. We would like to see steady increases in durable goods orders as that would lead to higher manufacturing production and also a boost in GDP. As an investor, it is better to look at three-month moving averages or year-over-year changes for extremely volatile indexes. In the case for durable goods orders, the three-month moving average is 230.7 billion.