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

New orders for U.S. durable goods declined by 4.5% in May, a figure that, while appearing significant, belies underlying strength in the manufacturing sector. This headline number, which registers a 4.1% decrease when accounting for prior month revisions, was nonetheless better than the anticipated 5.0% contraction.

The decline in overall orders was primarily driven by a substantial reduction in the volatile commercial aircraft category. In contrast, new orders excluding transportation—a less erratic measure of industrial activity—increased by 1.3% in May, exceeding the consensus forecast of a 0.6% rise (or 1.6% with revisions). This non-transportation segment has seen a robust 10.2% increase from a year ago, representing the largest annual gain in four years, while overall orders are down 3.5% over the same period.

All major non-transportation categories experienced growth in May. Leading this expansion were primary metals, which rose by 3.0%, followed by industrial machinery at 1.9%, and fabricated metal products at 1.5%. Many of these key sectors have shown accelerated growth recently, with primary metals, fabricated metal products, machinery, and computers & electronic products all achieving double-digit growth over the past year. Orders for computers & electronic products notably surged at an annualized rate of 22.5% over the last six months, among the highest gains recorded for any six-month period in two decades.

This sustained demand is evident in the backlog of orders, with unfilled orders for durable goods rising 0.6% in May and 8.5% over the past year, indicating that factories are struggling to keep pace. Crucially for economic indicators, shipments of non-defense capital goods excluding aircraft—a key component used to calculate business investment in Gross Domestic Product (GDP)—increased by 0.3% in May. Should this trend hold steady in June, these shipments would register an 8.2% annualized growth rate in the second quarter compared to the first-quarter average. This suggests a continued strengthening in business investment, spurred by a more favorable tax environment and increased spending on artificial intelligence.

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Key terms:

1. **Durable Goods:** Products designed to last for three years or more, such as cars, appliances, and machinery. Orders for these goods indicate future manufacturing activity and business investment.

2. **Non-defense Capital Goods Excluding Aircraft:** A measure of business investment in equipment that is not military-related and excludes volatile aircraft orders. This is a key input for calculating Gross Domestic Product (GDP).

3. **Unfilled Orders:** The total value of orders placed with manufacturers that have not yet been shipped or completed. An increase suggests strong demand and potential future production activity.