Aircraft Orders Surge While Core Capital-Goods Orders Stall

By Robert Hughes

New orders for nondefense aircraft and parts surged 131.2 percent in June to $25.3 billion, the third-highest on record. The backlog of unfilled orders rose $13.3 billion to $585.6 billion, just 4.3 percent below its all-time record reached in 2014.

The surge in aircraft orders helped push total manufacturers’ new orders up 6.5 percent in June to $245.6 billion. Total new orders for the first half of 2017 are up 5.0 percent over the same period in 2016. Among the categories shown separately, orders increased in six and declined in four in June. For the first half of 2017, orders are up in eight categories compared to the same period last year and down in just two.

Core capital-goods orders, nondefense capital goods excluding aircraft, fell 0.1 percent in June, to $63.4 billion, but are up 2.8 percent for the first half compared to 2016. The modest gain in the first half is consistent with the overall slow pace of growth in the broader economy. Fundamentals such as strong corporate cash flow, rising profits, high levels of cash, and still-low financing rates should allow for stronger investment once business leaders gain more confidence in the prospects for better final demand.

The National Activity Index from the Chicago Fed, an index made up of 85 monthly economic indicators, moved back into positive territory in June, rising to 0.13 from −0.30 in May. The index is constructed so that zero suggests trend growth in the economy. The three-month moving average, which tends to smooth out monthly volatility, also moved back slightly above zero, suggesting slightly above-trend growth. The overall index has been very close to zero over the past eight months, confirming the modest pace of economic growth. The 85 individual indicators are grouped into four major categories: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Among the four, three had readings above zero in June while one, personal consumption and housing, posted a negative result.

The latest reading on weekly initial claims shows a slight rise to 244,000 for the week ending July 22. That figure is up 10,000 from the prior revised reading of 234,000. The four-week moving average was 244,000, the same as the prior four-week average. A level of initial claims below 300,000 is considered consistent with a tight labor market, and claims have been below that level for 123 weeks. Measured as a percentage of payroll employment, claims are 0.167 percent of payrolls, the lowest on record.

The strong labor market continues to be the cornerstone of the economy. However, modest wages growth and heightened political uncertainty continue to restrain overall economic growth.

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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.