Durable Goods Up on Aircraft Orders

Durable goods orders jumped 4.2% in June after being revised up for the month of May. The dirt is in the details, however, and the overwhelming majority of those gains were concentrated in aircraft orders (Boeing), which take years to fill and can later be cancelled on the flip of a dime. We also saw an increase in defense-related aircraft orders, which will be difficult to pay for if the sequester persists.

Core capital goods orders excluding aircraft, which more closely track actually investment rose a more modest 0.7% in June. Core shipments, which go into the calculation of business investment for the second quarter, declined 0.9% after rebounding briefly in May.

Communications equipment saw the largest declines in both orders and shipments. Those losses came on the heels of two months of unusually strong gains. The real weak spot has been computers, which are on a downward trend; that underscores the shift in technology from PCs to handheld devices and some fatigue in C-suites with the technological revolution.

Bottom Line: Investment trends remain relatively weak and reinforce our view that we will be lucky to cross the 1% threshold on real GDP growth for the second quarter. Benchmark revisions, which were last done in 2009, will be released next week with the first cut of data on second quarter growth. Those revisions will alter our view of history and reset the baseline for the outlook going forward.

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