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

New orders for durable goods decreased by 4.5% in May, a better outcome than the anticipated 5.0% decline. This headline figure, however, masks robust activity in core economic sectors. Orders excluding transportation, a key indicator of underlying demand, rose by 1.3% in May, exceeding the consensus forecast of a 0.6% increase. Despite the overall decline in May, orders are down 3.5% from a year ago, while orders excluding transportation have climbed 10.2% over the same period, marking the largest annual gain in four years.

The significant drop in May's overall orders was primarily driven by a fall in commercial aircraft bookings, a highly volatile category. Conversely, all major non-transportation categories registered increases. Notable gains were seen in primary metals (+3.0%), industrial machinery (+1.9%), and fabricated metal products (+1.5%). Many of these categories, including computers and electronic products, have shown double-digit growth over the past year. Orders for computers and electronic products, in particular, have accelerated at an annualized rate of 22.5% over the past six months, nearing their highest six-month growth in two decades.

This sustained demand has led to a backlog in manufacturing, with unfilled orders for durable goods increasing by 0.6% in May and 8.5% over the last year. A crucial metric for assessing business investment within GDP calculations is shipments of non-defense capital goods excluding aircraft. This measure advanced by 0.3% in May. Should this trend persist into June, these orders would contribute to an annualized growth rate of 8.2% in the second quarter compared to the first quarter average. Business investment has demonstrated consistent strength since mid-2025, buoyed by a more favorable tax environment and increased spending on artificial intelligence initiatives.

This positive sentiment aligns with broader regional indicators, as evidenced by the Kansas City Fed Manufacturing Index, which tracks factory sentiment. The index rose to 11 in June from 8 in May, further indicating a resilient manufacturing sector despite the headline decline in overall durable goods orders.

Key terms:

1. **Durable Goods**: Products designed to last for three years or more, such as cars, appliances, and machinery. They are an indicator of consumer and business confidence.

2. **Orders Excluding Transportation**: A more stable measure of economic activity that removes volatile orders for aircraft and other transportation equipment, providing a clearer picture of underlying manufacturing demand.

3. **Non-Defense Capital Goods Excluding Aircraft**: This specific measure is used by the government to calculate business investment, a major component of Gross Domestic Product (GDP), as it reflects spending on equipment and machinery by businesses, excluding defense-related items and highly fluctuating aircraft orders.