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Durable Goods Orders Dip Despite Stockpiling Ahead of Tariffs

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Durable goods orders fell 1.7% or $4.3 billion in July compared to June. The decrease was driven primarily by a double-digit plunge in aircraft orders after a strong June, though it raises the number of recent down months to three out of four. Excluding the transportation sector, orders were up 0.2%. Autos surprised with a second consecutive strong month. Orders for core capital goods, excluding defense and aircraft, rose 1.4%; that is a good indicator of business investment plans. Unfilled orders for core capital goods increased 0.5% during the same period.

Stockpiling of goods to get ahead of new tariffs drove a 12.6% increase in orders for computer equipment. A similar dynamic continues to play out in the auto sector. Orders for primary metals like steel increased slightly, which we can trace back to U.S. steel prices becoming more competitive. In contrast, orders for communications equipment decreased in July after small rise in June. We expect to see decreases in other sectors on the heels of $16 billion in additional tariffs slapped on China by the U.S. on Thursday, which China immediately matched.

Defense spending fell off sharply after a strong June. That drop and the decline in aircraft orders are both due to orders that come in fits and starts. Government purchases are dependent on the timing of federal spending outlays while aircraft orders are clustered around major air shows. For example, Boeing announced a sharp increase in orders during the Farnborough airshow in England in June.

Bottom Line
On the whole, durable good orders continue to rise with the rest of the economy. At the same time, they are highly sensitive to policy changes in the U.S. tax code and global trade system. We expect to see stronger growth when uncertainty surrounding these policies is resolved.

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