U.S. Durable Goods Orders Fell 4.5% in May, Ex-Transport Orders Rose 1.3%

New orders for durable goods declined by 4.5% in May, a contraction that was less severe than the anticipated 5.0% decrease. However, a deeper look into the data reveals a more resilient economic picture beneath the headline figure. The decrease was predominantly driven by a significant decline in commercial aircraft orders, a notoriously volatile component that also fueled an 8.5% rise in overall orders in April. Excluding this fluctuating sector, new orders for durable goods actually increased by 1.3% in May, surpassing the consensus expectation of a 0.6% rise and marking a robust 10.2% increase over the past year—the largest annual gain in four years.

Strength was observed across most non-transportation categories. Primary metals saw a 3.0% increase, industrial machinery rose by 1.9%, and fabricated metal products gained 1.5%. Many of these key categories have demonstrated substantial growth over the past year. For instance, primary metals orders are up 15.9%, industrial machinery 14.0%, and computers and electronic products 13.3%. Orders for computers and electronic products, in particular, have experienced an annualized growth rate of 22.5% over the last six months, a pace nearly matching the strongest such period in two decades.

This sustained demand is also reflected in the backlog of orders. Unfilled orders for durable goods rose by 0.6% in May and have increased by 8.5% over the past year, indicating that factories are working to keep pace with demand. A crucial component for gauging business investment within the broader economy is the shipment of non-defense capital goods excluding aircraft. This measure increased by 0.3% in May. If this pace were sustained, it would translate to an 8.2% annualized growth rate in the second quarter compared to the first quarter average.

Business investment has shown consistent strength since mid-2025, driven by a more favorable tax environment and ongoing expenditure in artificial intelligence. This sustained growth in core shipments underscores a healthy investment climate. Complementing this sentiment, the Kansas City Fed Manufacturing Index, an indicator of factory activity in the region, also saw an improvement, rising 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. They are often seen as an indicator of economic health because their purchase can be postponed during economic uncertainty.

2. **Capital Goods**: Goods that are used in the production of other goods or services. Non-defense capital goods excluding aircraft are often used as a proxy for business investment, a key component of economic growth.

3. **Unfilled Orders**: Orders for goods that have been received but not yet delivered. A rise in unfilled orders can indicate strong demand that outpaces current production capacity.