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

New orders for durable goods in the U.S. decreased by 4.5% in May, a reported figure that was better than the consensus expectation of a 5.0% decline. However, a deeper look at the data reveals a more optimistic picture for the manufacturing sector. When excluding the highly volatile transportation category, new orders actually increased by 1.3% for the month, exceeding the 0.6% consensus expectation. This underscores a broadening strength in economic activity, with orders excluding transportation rising 10.2% over the past year, the largest annual gain in four years.

The overall decline in May was primarily driven by a significant drop in commercial aircraft orders, which can fluctuate widely from month to month. Conversely, all major non-transportation categories experienced an increase. This included notable gains in primary metals, up 3.0%, industrial machinery, which rose 1.9%, and fabricated metal products, increasing by 1.5%. This broad-based growth across various sectors indicates a healthy demand for manufactured goods outside of the lumpy transportation segment.

Several key manufacturing categories have shown sustained momentum, with primary metals, fabricated metal products, machinery, and computers & electronic products all experiencing double-digit growth over the past year. Orders for computers and electronic products have been particularly strong, expanding at an annualized rate of 22.5% over the past six months. This represents one of the largest six-month gains in two decades for the sector. Such robust demand is contributing to factories facing challenges in fulfilling orders, as evidenced by a 0.6% rise in unfilled orders in May, bringing the year-over-year increase to 8.5%.

Another crucial indicator from the May report is the rise in shipments of non-defense capital goods excluding aircraft, a proxy for business investment in gross domestic product (GDP) calculations. This measure saw a 0.3% increase in May. Should this trend remain constant in June, these core shipments would be on track to grow at an annualized rate of 8.2% in the second quarter compared to the first-quarter average. This sustained strength in business investment since mid-2025 is broadly attributed to a more favorable tax environment and increased spending on artificial intelligence technologies, further signaling underlying economic resilience.

Key terms:

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

2. **Capital Goods**: Long-lasting assets used by businesses to produce other goods and services, including machinery, equipment, and buildings.

3. **Unfilled Orders**: Orders for goods that have been received but not yet shipped or completed by manufacturers.