Aircraft Orders Fuel Durables

Durable goods orders jumped 1.8% in August, buoyed by a 77.9% surge in orders for aircraft, which can take years to fill. Orders for motor vehicles and parts fell in part due to supply shortages and the associated skyrocketing prices. July orders were revised up to 0.5% from -0.1%; orders for transportation equipment, computers, electronics and appliances were not as negative as first reported.

Core capital goods orders, which strip out aircraft and defense orders and reflect business plans, rose a solid 0.5% during the month. That follows a moderate, upwardly revised 0.3% gain in July. Gains in orders for manufacturing, fabricated metals, communications equipment and appliances offset a drop in orders for machinery, primary metals and motor vehicles and parts.

Core shipments rose 0.7% in August, after increasing at a 0.9% pace in July. That supports our view that business investment will pick up even as consumer spending slows in the third quarter in response to the spread of the Delta variant of COVID.

Businesses are struggling to rebuild inventories following strong demand earlier in the pandemic. Backlogs built in August even as inventories rose a bit.

Most now expect supply chain interruptions to linger well into 2022. The biggest issue is access to vaccines for emerging economies. They have been hit hardest by the variant, along with one developed country, the U.S.

Bottom Line
Business investment is on track to post stronger gains than during the second quarter. Orders and shipments posted double-digit increases compared to a year ago. We will need those improvements since consumer spending has slowed. Much still depends upon the course of the virus.

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