Durable Goods: Up, Up and Away! At Least for Aircraft

By May 26, 2010Economy, Taxation

While today’s report from the Commerce Department shows that orders to U.S. factories for big-ticket manufactured goods rose a brisk 2.9 percent in April, this increase was fueled largely by commercial aircraft orders, which soared 228 percent last month and are extremely volatile from month to month due to the large dollar volume of transactions. Outside of non-defense aircraft, new orders actually fell by 1 percent in April, the second decline in the past three months. This decline was driven by either outright declines in orders in areas such as machinery, primary metals and electrical equipment or more moderate increases in areas such as computers and electronics and fabricated metals.

Outside of aircraft, the bulk (88 percent) of the decline in new durable orders last month was caused by a 5.9 percent drop in machinery, which in turn is a major purchaser of both primary and fabricated metal products. Given the fact that 41 percent of machinery manufactured in the United States is exported — and more than a fifth of that is sent to Europe –we will be watching to see if today’s report could be the first spillover effect of the European debt crisis into the U.S. economy.

With the positive effects from the recently expired homebuyer tax credit likely to diminish in the months ahead, more economic growth will have to come from other areas including business investment, consumer spending and exports if the manufacturing recovery is to maintain its current trajectory. And while today’s report is not alarmingly negative, it does suggest that the manufacturing recovery may be slowing from the brisk pace of the past three quarters. However, due to the monthly volatility of most durable goods orders, several more months of data will be required to ascertain if a sustained slowdown is in the making.

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