U.S. Durable Goods Orders Down 4.5% in May, Ex-Transportation Up 1.3%

New orders for U.S. durable goods fell 4.5% in May, though the comprehensive data reveals a more resilient economic landscape. This headline decline was largely influenced by a significant drop in commercial aircraft orders, despite overall orders beating the consensus expectation of a 5.0% decrease. Year-over-year, total durable goods orders are down 3.5%.

Excluding the often-volatile transportation sector, new orders for durable goods advanced 1.3% in May, surpassing the anticipated 0.6% increase. This key indicator has risen at an annualized rate of 14.3% over the past six months and a robust 10.2% over the last year, representing the most substantial annual gain in four years. All major non-transportation categories recorded increases, led by primary metals, which climbed 3.0%, followed by industrial machinery at 1.9%, and fabricated metal products with a 1.5% gain.

The strength in core industrial sectors suggests expanding demand. Primary metals, fabricated metal products, machinery, and computers & electronic products have each experienced double-digit growth year-over-year. Notably, orders for computers and electronic products have increased at an annualized rate of 22.5% over the past six months, marking one of the largest gains for any six-month period in two decades. This sustained demand is straining manufacturing capacity, evidenced by a 0.6% rise in unfilled orders for May, bringing the year-over-year increase to 8.5%.

Of particular importance for gross domestic product calculations, shipments of non-defense capital goods excluding aircraft—a proxy for business investment—increased 0.3% in May. Should this trend remain unchanged in June, these core shipments would be on track to grow at an 8.2% annualized rate in the second quarter compared to the first-quarter average. Business investment has shown consistent strength since mid-2025, a trend attributed to a more favorable tax environment and increased spending on artificial intelligence initiatives. This aligns with broader manufacturing sentiment, as indicated by the Kansas City Federal Reserve Manufacturing Index, which rose to 11 in June from 8 in May.

Key terms:

1. Durable Goods: Products designed to last for three years or more, such as cars, appliances, and machinery.

2. Non-defense Capital Goods Excluding Aircraft: A measure used to gauge business spending on equipment and software, crucial for calculating business investment in GDP.

3. Unfilled Orders: Orders received by manufacturers that have not yet been produced or shipped, indicating future production activity.