Implications: The headline 2.1% drop in new orders for durable goods looks dismal, but don't let it fool you. Most of the fall in June was due to aircraft, which are very volatile from month to month. Excluding the transportation sector, orders were up 0.1% in June and the gains were widespread, with almost every major category of orders increasing. In other words, the economy continues to grow and is moving forward out of the soft patch. Shipments of "core" capital goods (which exclude aircraft and defense, and which the government uses to calculate GDP) rose 1.0% in June. These shipments are up 7.6% versus a year ago. Given record corporate profits and balance sheet cash, relatively low borrowing rates in the corporate sector, a recent rise in commercial and industrial lending, plus full expensing for tax purposes for 2011, we believe business investment will increase substantially over the next couple of years.
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