Core capital goods orders steady despite durable goods drop

New orders for core capital goods remained consistent in June for the third straight month as companies continued to navigate rising interest rates.  

June’s seasonally adjusted value of core capital goods orders, excluding aircraft and defense equipment, was $74 billion, up 1% month over month following a revised 0.9% decline in May, according to the Monthly Advance Report on Durable Goods Manufacturers’ Shipments Inventories and Orders released by the U.S. Census Bureau July 25.  

Seasonally adjusted shipments for core capital goods were $74 billion in June, up 0.1% MoM after a revised 0.7% decline in May, as orders remain flat since August 2022, according to a research note from Wells Fargo. 

“Overall, the durable goods data are still consistent with a stalling in the broad manufacturing sector as initial strength in information processing equipment coming out of the pandemic looks to now be getting somewhat replaced with demand for transportation equipment,” the note stated. “The net result has been a flatlining in core capital goods orders for nearly two years.” 

Seasonally adjusted new orders for durable goods landed at $264.5 billion in June, down 6.6% MoM after a revised 0.1% rise in May, according to the report. Meanwhile, seasonally adjusted shipments for durable goods were $288.1 billion, up 1.2% MoM following a revised 0.4% decline in May. 

Market weakness in durable goods reflects continued industrial and manufacturing concerns, according to the Wells Fargo note. 

“The plunge in orders for new durable goods in June overstates weakness in CapEx demand,” according to the research note. “Yet durables data are still consistent with a stalling in the industrial space, and we remain hesitant the pickup in activity implied by Q2 equipment investment in the GDP report can be sustained.” 

Unfilled orders, total inventories  

Seasonally adjusted unfilled orders for core capital goods reached $266.3 billion in June, essentially flat compared with May, following consecutive months of 0.2% drops. Seasonally adjusted total inventories for core capital goods hit $163.2 billion in June, up 0.1% after the Census Bureau revised May’s 0.1% increase to flat. 

Seasonally adjusted unfilled orders for durable goods totaled $1.4 trillion in June, down 1.3% MoM after a revised 0.2% change in May. Seasonally adjusted total inventories for durable goods finished at $530.4 billion in June, flat compared with May following a revised 0.2% increase. 

An interest rate cut by the Federal Reserve in September could improve capital expenditures somewhat, durable goods and core capital goods face continued constraints ahead of election season, according to the Wells Fargo note. 

“We ultimately remain cautious on the outlook for CapEx demand this year,” according to the note. “Not only are businesses facing a higher cost to finance new equipment expenditures, but they are also dealing with large uncertainty around the outcome of the U.S. presidential election.” 

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