Aircraft Orders Plunge, But Core Capital Goods Post a Solid Gain
Orders for nondefense aircraft plunged 70.7 percent in July after surging 129.3 percent in June. Aircraft orders tend to be extremely volatile. Despite efforts to adjust for seasonal patterns, the annual air show in Paris can result in huge swings in orders in some years.
The plunge in aircraft orders pulled total new orders at the nation’s manufacturers down 6.8 percent in July, to $229.2 billion versus $245.9 billion in June. Year to date, total new orders are $1,531.3 billion, a rise of 5.0 percent versus the same period last year.
Total new orders for core capital goods — nondefense capital goods excluding aircraft — a proxy for private-sector capital investment, totaled $63.8 billion in July, a rise of 0.4 percent from the prior month and 3.5 percent from July 2016. Year to date, new orders for core capital goods total $442.6 billion, 3.3 percent above the same period last year.
Among the individual categories of new orders, gains in July were led by defense aircraft (+47.8 percent), computer products (+5.5 percent), electrical equipment and appliances (+2.6 percent), fabricated metals (+1.0 percent), and other durables (+0.6 percent). The categories with the largest declines were nondefense aircraft (−70.7 percent), machinery (−1.4 percent), motor vehicles (−1.2 percent), and communications equipment (−1.1 percent).
Year to date, the strongest categories are nondefense aircraft (+20.5 percent versus 2016), primary metals (+10.3 percent), fabricated metals (+8.8 percent), and machinery (+6.2 percent), while the laggards are computer products (−0.2 percent), electrical equipment and appliances (+0.2 percent), communications equipment (+1.5 percent), and motor vehicles (+1.5 percent).
Overall, factory orders in aggregate and new orders for core capital goods have been trending higher over the past year. Modest trend growth in the economy is helping boost demand, yet levels remain below peak levels from prior expansions, suggesting room for further expansion in new orders. Continued growth in new orders should translate into positive contributions to GDP growth in the coming quarters.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
