Implications:  New orders for durable goods surprised to the upside in July, rising 1.1% versus the consensus expected 0.5%. The surprise comes in the midst of a resurgence in capital investment for data centers, which has been a tailwind for economic growth this year. That said, the July headline was boosted by a 2.3% rise in transportation equipment, particularly a 12.7% rise in commercial aircraft orders. Transportation is a notoriously volatile category month to month, so we prefer to focus on orders excluding transportation for a better check on the broader economy. Orders excluding transportation continue to rise at a solid pace, up 0.4% in July and 11.0% in the past year, just shy of June’s 11.5% year-ago comparison gain, which was the largest in more than four years. The increase in these new orders was led by primary metals (+1.5%), industrial machinery (+1.2%), and fabricated metals products (+0.4%). Orders for computers and electronic products declined in July (-1.1%) but are still up 14.8% in the past year – close to the largest annual gain in about 20 years. In fact, electrical equipment is the only major category outside transportation to fall short of double-digit growth over the past year, though it’s still up a healthy 6.8% year-over-year.  Arguably the most important number in today’s release is core shipments – a key input for business investment in the calculation of GDP – which rose 1.4% in July. If unchanged in August and September, core shipments would rise at a 12.6% annualized rate in Q3 versus the Q2 average. Business investment has shown strength recently as core shipments have consistently risen for the past year, driven by a more favorable tax environment and the data center buildout. The massive capital spending from the hyperscalers – projected to reach almost $700 billion this year – has been a tailwind for GDP for the past two quarters and should continue to prop up growth if these companies can sustain the spending pace.

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