July Durable Goods Report

By August 25, 2010Economy

The Commerce Department reported today that new orders for durable manufactured goods rose by only 0.3 percent in July. This is the first increase in three months, but manufacturing growth continues to slow. Unfortunately, the July increase was mainly due to a 76-percent surge in new orders for non-defense aircraft, which are extremely volatile from month to month and are not a good indication of near-term growth because the lead time from order to production is so long.

Declines in orders were widespread in other areas, including fabricated metals, computers and electronics, machinery and electronic products. In most of these industries, the July decline was the second in the past three months. Outside of transportation, new orders fell by 3.8 percent in July, the largest drop in 18 months. A significant concern is that new orders for non-defense capital goods (excluding aircraft), a good proxy for business investment, fell by 8 percent in July. 

Business investment accounted for more than half of GDP growth in the second quarter. Today’s report of a significant decline in this area at the start the third quarter adds to the mounting evidence that the economy is poised to decelerate as businesses remain concerned about the underlying strength of the recovery.

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