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

New orders for durable goods in the U.S. fell 4.5% in May, a steeper decline than the consensus forecast of a 5.0% drop. This headline figure, however, masks strength in underlying demand. Excluding the often-volatile transportation sector, orders for durable goods actually rose 1.3% in May, surpassing the expected 0.6% increase. This suggests that while overall orders are down 3.5% from a year ago, manufacturing activity outside of transportation remains robust, with these orders climbing 10.2% over the same period.

The significant fall in May's headline orders was primarily driven by a sharp contraction in commercial aircraft bookings. This category is known for large, infrequent orders that can heavily skew monthly data, as seen in April when a surge in aircraft orders fueled an 8.5% rise in overall durable goods. When isolating trends outside of transportation, all major categories saw gains in May, including primary metals, up 3.0%; industrial machinery, which increased by 1.9%; and fabricated metal products, rising 1.5%. Many of these sectors have sustained momentum, with primary metals, fabricated metal products, machinery, and computers & electronic products all experiencing double-digit growth year-over-year. Notably, computer and electronic product orders have climbed at an annualized rate of 22.5% over the past six months, marking one of the sector's largest such gains in two decades.

The sustained demand has put pressure on manufacturers, leading to a 0.6% rise in unfilled orders in May, bringing the annual increase to 8.5%. This backlog indicates that factories are working to keep pace with incoming business. A key indicator for business investment, shipments of non-defense capital goods excluding aircraft, rose 0.3% in May. If June maintains this level, these core shipments would see an annualized growth rate of 8.2% in the second quarter compared to the first quarter average. This suggests a continued positive trend in business capital expenditure, a crucial component of Gross Domestic Product (GDP).

This strength in core shipments aligns with recent observations of increased business investment since mid-2025, a trend attributed to a more favorable tax environment and growing expenditures in artificial intelligence. Further supporting a positive outlook for the manufacturing sector, the Kansas City Fed Manufacturing Index, which gauges factory sentiment in its region, improved to 11 in June from 8 in May. This broader regional indicator reinforces the notion that despite the headline decline in durable goods orders, the manufacturing sector, particularly outside of transportation, is experiencing healthy growth and investment.

Key terms

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

2. **Unfilled Orders:** Orders received by manufacturers that have not yet been produced or shipped.

3. **Non-defense Capital Goods Excluding Aircraft:** A measure of business investment in equipment, excluding products for defense and the highly volatile aircraft industry, which is a key input for calculating GDP. 'Core shipments' is a common term for this metric.