Durable Goods Orders Surge on Military Aircraft Spending

A surge in orders for military aircraft sent new orders placed with U.S. factories for durable goods unexpectedly higher in June, data from the Commerce Department showed Wednesday.

Orders for durable goods rose 1.9 percent in June after rising 0.8 percent a month earlier. Economists had forecast a 0.4 percent decline as surveys of purchasing managers and regional Federal Reserve banks indicated contracting demand for U.S. manufactured goods.

The gain was led by a big jump in purchases of defense aircraft. Orders rose 80.6 percent to $9.76 billion in June after rising 9.8 percent in May and 2.4 percent in April. Year to date, orders for defense aircraft are up 12 percent to $32.9 billion.

The monthly figure is the second highest level of orders for defense orders ever, behind the month that followed the 9/11 attacks.

The figures are not adjusted for inflation. In June, the Producer Price Index for goods rose 2.4 percent and is up 17.4 percent compared with 12 months earlier. Excluding food and energy, goods prices were up 0.5 percent in June and 9.1 percent over the year. The index of prices received by U.S. manufacturers of defense goods rose 0.7 percent and was up 15.2 percent for the year.

Excluding defense, orders rose 0.4 percent and yeart-to-date are 11.4 percent above last year’s level. While that exceeds what economists expected, it likely indicates a contraction in orders after adjusting for inflation. Prices of durable consumer goods prices rose 0.5 percent in June and are up 8.4 percent compared with a year ago.

Core capital goods orders, which strip out aircraft and defense spending, rose 0.5 percent for the month and are up 10.1 percent year to date. These are considered a proxy for business investment and have been up modestly for four consecutive months. Prices of capital equipment for the private sector, however, were up 0.7 percent in June and are up 9.3 percent for the year, suggesting that much or all of the gain is due to inflation.

Orders for cars, trucks, and parts rose 1.5 percent, more than double the 0.7 percent gain in the price of new vehicles tracked by the Consumer Price Index. So far this year, motor vehicle orders are up 12.1 percent, exceeding the 11.4 percent gain in the CPI’s index of new vehicles.

Excluding transportation, new orders were up 0.3 percent in June compared with May and 8.5 percent year-to-date. The monthly figure suggests a contraction after inflation adjustment and the year-to-date figure indicates zero growth.


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