August durable goods orders rose 1.7 percent, in part due to another strong month for aircraft. Core orders, however, rose 0.9 percent and suggest solid equipment spending in the second half of the year.

Ear Protection Area: Aircraft Still Noisy

Durable goods orders suggest that the manufacturing sector continues to gain momentum. New orders rose 1.7 percent in August, beating market expectations for a 1.0 percent gain. The increase follows two particularly choppy months where aircraft orders led to more than a six percent jump in June that was immediately unwound in July. The noise was dialed down somewhat in August, but 33 new orders from Boeing led to a 44 percent rise in the value to aircraft orders over the month.

- advertisement -

Outside of aircraft, gains were more modest. Orders for vehicles and parts snapped a two month string of declines and rose 1.5 percent. We are just now coming out of the summer shutdown season, in which the timing and length of stoppages have become more varied in recent years. Therefore, we are cautious to read too much into the August gain, particularly as auto sales have struggled over the past year. Orders for new vehicles and parts have largely moved sideways over the past year and are up only 0.9 percent from last August.

Positive Momentum Heading into the End of the Year

Excluding transportation, orders rose 0.2 percent. That was in line with expectations, but the increase came on the heels of an upward revision to July. The real strength in today’s report, however, lies in new orders for nondefense capital goods ex-aircraft. This measure of "core" orders rose 0.9 percent (also on the heels of a modest upward revision to July). Some of that strength can be traced to machinery and primary metals, but orders for communications equipment rose an impressive 4.0 percent last month.

Core orders are now running at an average annualized pace of 6.4 percent over the past three months, similar to the pace registered early in the year. Momentum looks to have carried forward in September. The regional purchasing managers’ indices released thus far this month have all improved, with new orders expanding at a faster clip according to the New York, Philadelphia, Richmond and Dallas Fed manufacturing surveys.

Shipments Point to Another Good Quarter for Equipment

Shipments of durable goods edged up 0.3 percent in August despite a pullback in the aircraft industry. While aircraft is excluded from our preferred measure of core orders due to the long lead time, shipments for the industry are still useful in gauging the strength of current outlays for equipment in the GDP report. Non-defense capital goods shipments are up at a 9.2 percent annualized pace thus far in the third quarter. That sits well with our call for another solid quarter of equipment spending. We currently have penciled in a 6.9 percent rise in equipment spending for the current quarter, while the strength of core orders is pointing to a similarly strong rise in the fourth quarter.

Previous articleTrade Idea Wrap-up: EUR/USD – Sell at 1.1810
Next articleTrade Idea Wrap-up: GBP/USD – Sell at 1.3500
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.