August Durable Goods Orders Unchanged as Core Shipments Boost Business Investment

According to Nate Gerze, Economist, Brian S. Wesbury, Chief Economist, and Robert Stein, Deputy Chief Economist at First Trust Portfolios, new orders for durable goods registered as unchanged in August. This figure, which included a -0.2% change after revisions, slightly exceeded the consensus expectation of -0.3%. Orders excluding transportation, a category First Trust's economists prefer to monitor for a clearer view of the broader economy, increased by 0.3% in August, or 0.6% including revisions, against a consensus estimate of +0.6%. Overall, orders are up 8.5% from a year ago, with non-transportation orders rising 11.2%. Gerze, Wesbury, and Stein note that gains in orders for machinery, primary metals, and defense aircraft were counteracted by declines in commercial aircraft and automotive sectors.

First Trust's analysis highlights that the government's measure for business investment in GDP calculations—shipments of non-defense capital goods excluding aircraft—rose 0.6% in August. This followed a 1.4% increase in July. The economists project that if these orders remain unchanged in September, they would reflect a 14.5% annualized increase in the third quarter compared to the second quarter average, representing an acceleration from the 11.6% pace observed in Q2. These shipments have seen an 11.4% increase over the past year, which the report describes as the largest annual gain outside of the COVID years since 2012.

The commentary attributes this strong increase in core shipments to several factors, including "capital spending from the hyperscalers," reshoring of production, and a more favorable tax environment for investment. The report also points to increased defense procurement providing an additional boost, with defense shipments up 28.0% over the past year and nearly doubling since 2019. Unfilled orders for durable goods climbed 0.6% in August and have increased by 8.8% over the last twelve months.

Key terms

1. Durable Goods: Products that are not consumed immediately and can be used for a long period, typically three years or more, such as vehicles, appliances, and machinery.

2. Non-defense Capital Goods Excluding Aircraft: A key economic indicator used to gauge business investment, as it reflects spending by businesses on equipment and machinery, excluding volatile transportation and defense components.

3. Annualized Rate: A projection of what a financial or economic measure would be over a full year, based on data from a shorter period.

Source: Nate Gerze, Economist; Brian S. Wesbury, Chief Economist; Robert Stein, Dep. Chief Economist, First Trust Portfolios — Data Watch. Read the original at ftportfolios.com.