Issue: Sep 2009


Durable Goods - July 2009 - "Durable Goods Orders Up Sharply on Aircraft Surge"



"Durable Goods Orders Up Sharply on Aircraft Surge"

by Nigel Gault , IHS Global Insight

Bottom Line

Durable goods orders rose 4.9% in July, their fastest increase in two years.
Aircraft orders drove the gains. Excluding transportation, orders rose a more sedate 0.8%

Orders for non-defense capital goods excluding aircraft – the bellwether for capital equipment demand – fell 0.3% in July, but that followed sharp increases in May and June. 

Inventories of durable goods were cut 0.8%. The inventory/shipments ratio is falling sharply. 

The report points to increases in manufacturing production ahead.

Outlook

Aircraft orders were the key to the 4.9% surge in durable goods orders in July. Orders for nondefense aircraft and parts more than doubled, as Boeing had its best month for orders of the year. There were also gains, though much less steep, in autos orders as manufacturers began to ramp up production. The success of "cash-for-clunkers" points to further autos increases in coming months as manufacturers replenish depleted inventories. Without the transportation gains, orders were up a much more sedate 0.8%.

Defense orders also rose sharply, reversing about half of June's big drop.

The news from the bellwether indicator of equipment demand, orders for nondefense capital goods excluding aircraft, looked disappointing on the surface, down 0.3%. But that small loss follows two very strong increases, and orders are now 7.7% above their April trough, a signal that capital equipment demand in the U.S. and abroad has turned the corner. These gains suggest that capital equipment spending will begin to increase again in the current quarter.

The inventory adjustment continued. Inventories of durable goods fell again, by 0.8%, and the inventories-to-shipments ratio is now falling very rapidly. That means that manufacturers – and not just in the autos sector – will be increasing production in coming months, to prevent inventories from being depleted too far.


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