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  New Orders for Durable Goods Rose 3.4% in June
Posted Under: Data Watch • Durable Goods

 
Implications: Don't get too excited about the big headline 3.4% gain in new orders for durable goods in June; the underlying details of the report were good, but not overwhelmingly so, signaling that the economy is still a Plow Horse. Although the increase in orders for durables was slightly stronger than the 3.2% the consensus expected, the gain was almost all due to the very volatile transportation sector, specifically a 66.1% jump in civilian aircraft orders, which brought the overall transportation sector up 8.9% in June. The good news was that orders excluding transportation rose 0.8% as most major categories showed small gains. Orders for durables have been facing downward pressure from the drop in energy prices since the middle of last year. But, we believe the worst is over in energy price declines, meaning an ease in the downward pressure from this sector on orders for durables outside the transportation sector. The worst news in the report was that "core" shipments, which exclude defense and aircraft, declined 0.1% in June and were down at a 1.0% annual rate in Q2 versus the Q1 average. Plugging these and other recent data into our models, we are forecasting real GDP grew at a 2.8% annual rate in Q2. Expect stronger gains in orders for durables in the year ahead. Consumer purchasing power is growing with more jobs and higher incomes, while debt ratios remain very low, leaving room for an upswing in big-ticket spending. Meanwhile, profit margins are high, corporate balance sheets are loaded with cash, and capacity utilization is near long-term norms, leaving more room (and need) for business investment.

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Posted on Monday, July 27, 2015 @ 12:47 PM • Post Link Share: 
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