U.S. Durable Goods Orders Fell 4.5% in May, but Underlying Demand Remains Strong

New orders for U.S. durable goods, products designed to last three years or more, declined 4.5% in May, a better performance than the anticipated 5.0% fall. However, a deeper look into the figures reveals a more optimistic picture for economic activity. The headline drop was largely attributable to a substantial decrease in commercial aircraft orders, a notoriously volatile category that had also driven an 8.5% surge in overall orders in April. Excluding the transportation sector, new orders actually advanced by 1.3% in May, exceeding the consensus forecast of a 0.6% increase and marking a 10.2% rise over the past year—the most significant annual gain in four years.

The strength in non-transportation categories was broad-based, with all major segments showing increases. Leading the gains were primary metals, which rose 3.0%, industrial machinery at 1.9%, and fabricated metal products up 1.5%. Many of these major categories, such as primary metals, fabricated metal products, machinery, and computer and electronic products, have shown accelerating growth recently, with each experiencing double-digit expansions over the last year. Notably, orders for computer and electronic products have escalated at an annualized rate of 22.5% over the past six months, approaching a two-decade high for a six-month period.

This sustained demand is also reflected in the backlog of orders. Unfilled orders for durable goods increased by 0.6% in May and have climbed 8.5% over the past year, indicating that factories are struggling to keep pace with the surge in demand. A critical component for calculating business investment in the nation's gross domestic product¹ (GDP) is shipments of non-defense capital goods excluding aircraft, often referred to as core capital goods shipments². This measure rose by 0.3% in May. If this pace were to hold steady in June, core capital goods shipments would be on track for an 8.2% annualized increase in the second quarter compared to the first-quarter average.

Recent trends in business investment have been positive, with core capital goods shipments demonstrating consistent growth since mid-2025. This momentum is believed to be fueled by a more favorable tax environment and increased spending on artificial intelligence technologies. Further underscoring the positive sentiment in the manufacturing sector, the Kansas City Fed Manufacturing Index, which gauges regional factory activity, improved to 11 in June from 8 in May.

Key terms

1. **Gross Domestic Product (GDP):** The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

2. **Core Capital Goods Shipments:** A measure of non-defense capital goods shipments, excluding aircraft, used by the government to calculate business investment in the GDP, indicating underlying business spending on equipment and software.