Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Durable goods orders rose again in May, but the data are still consistent with a sector struggling to find its footing. Our read on the monthly volatility is that the industrial space is stabilizing and remains some time off from a true recovery.
Similar Durables Volatility
In what was a better-than-anticipated outturn, new orders for durable goods rose 0.1% in May (chart). We were bracing for overall orders to be constrained by nondefense aircraft based on a relatively low number of orders reported by Boeing during the month. In actuality nondefense aircraft orders slipped ‘only’ 2.8% in May, and defense and motor vehicle orders were up, offsetting some of the weakness. It has been particularly challenging to get a clean read on the volatile aircraft component lately. When we exclude broader transportation, orders were weaker, slipping 0.1%, and underlying activity was muted across major items.
To that end, while overall orders revealed a bit of an upward surprise, the report was consistent with a fairly-weak demand environment as capex conditions remain constrained by elevated costs and uncertainty generally. Consider the monthly pattern of core capital goods orders has flip-flopped between negative and positive growth since the start of the year. Orders slipped 0.6% in May after rising 0.3% in April and are now down a modest 0.2% over the past year, a clear sign that while the manufacturing sector has shown some recent signs of stabilization, a recovery remains some time off.