July Sees Surge in Durable Goods Orders Driven by Aircraft Demand

Diccon Hyatt, a seasoned financial and economics journalist, has extensively reported on the pandemic-era economy through hundreds of articles over the past two years. He specializes in simplifying complex economic topics to illustrate their effects on personal finances and markets. His experience includes work with U.S. 1, Community News Service, and the Middletown Transcript.

Highlights

• U.S. factory orders for durable goods jumped significantly in July, primarily due to a strong recovery in aircraft orders following a sharp decline in June.
• Excluding the transportation sector, which is known for its volatility, most categories experienced a decline in orders.
• Durable goods orders serve as an economic indicator, revealing that the Federal Reserve's elevated interest rates aimed at curbing inflation continue to dampen economic momentum.

Demand among U.S. manufacturers surged in July when factoring in aircraft orders but showed stagnation without them.

The Census Bureau's latest report revealed a 9.9% increase in durable goods orders compared to June, surpassing economists' expectations of a 4% rise, according to a Dow Jones Newswires and The Wall Street Journal survey.

Transportation Sector Skews Overall Growth

Removing transportation orders from the equation, which often experience significant monthly fluctuations, durable goods orders actually declined by 0.2%, indicating a slowdown in industrial activity.

The notable monthly gain was largely attributed to a rebound in civilian aircraft orders after widespread cancellations in June. Beyond this sector, the data suggest that high borrowing costs, stemming from the Federal Reserve's interest rate hikes to tackle inflation, continue to restrain economic growth.

Potential Relief from Federal Reserve Rate Cuts

Many businesses appear to be pausing expansion initiatives, anticipating a reduction in the Federal Reserve's benchmark interest rate expected at the September meeting. A lower federal funds rate could reduce borrowing expenses for companies and consumers, potentially stimulating increased investment and spending.

Economists Shannon Seery Grein and colleagues at Wells Fargo Securities noted, "We anticipate a rebound in capital expenditures as the Federal Reserve lowers its target range for the federal funds rate, but it will take time for the benefits of reduced rates to permeate the economy. Current data confirm that manufacturers are largely on hold until more accommodative policies support widespread order growth."

Monday's figures also highlighted declines in orders across various sectors including electronics, metals, automotive, and appliances.

Daniel Vielhaber, an economist at Nationwide, commented, "Equipment spending remains subdued as companies navigate significant challenges posed by high interest rates and weak demand both domestically and internationally. Apart from commercial aircraft, there were no notable areas of strength."

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