Durable-Goods Orders Rose in June as Core Capital-Goods Hit a Record High

New orders for durable goods increased in June, gaining 0.8 percent, the 13^th rise in the last 14 months. Total durable-goods orders are up 40.7 percent from a year ago. The June gain puts the level of total durable-goods orders at $257.6 billion (see top of first chart).

New orders for nondefense capital goods excluding aircraft or core capital goods, a proxy for business equipment investment, rose 0.5 percent in June after gaining 0.5 percent in May and 2.7 percent in April, putting the level at $76.1 billion, another record high. This important category had been in the $65 to $70 billion range for several periods over the past 15 years before dropping to $59.9 billion in April 2020. The $59.9 billion pace was the slowest since December 2016.  Core capital-goods orders have been above $70 billion for eight consecutive months (see bottom of first chart).

Gains among the categories in the report were generally broad-based though moderate in magnitude. Just one of the seven major categories of durable goods shown in the report had a decline in the latest month with five posting increases and one roughly unchanged. Among the individual categories, primary metals rose 0.4 percent, fabricated metal products fell 0.8 percent, machinery orders added 0.6 percent, computers and electronic products rose 1.0 percent, electrical equipment and appliances were roughly unchanged from the prior month, transportation equipment jumped 2.1 percent, and the catch-all “other durables” category was up 0.5 percent (see second chart).  Within the transportation equipment category, motor vehicles and parts sank 0.3 percent while nondefense aircraft jumped 17.0 percent and defense aircraft increased 9.9 percent.

The report on durable-goods orders highlights the strength of the business sector. Capital spending reflects improving prospects for growth and rising confidence among business leaders. However, logistical and labor issues continue to hamper some areas of production, creating shortages of input material and putting upward pressure on prices. These pressures are likely to be temporary as issues are worked out and full production is resumed. The major risk over the short term is the resurgence in Covid from the Delta variant. The new outbreak may cause hesitation on the part of consumers or renewed government restrictions on economic activity.