US: Durable goods orders unchanged in August - RBS

Research Team at RBS, notes that the US durable goods orders in August were unchanged on a month-to-month basis (consensus 1.5%, RBS 2.0%) after a 3.6% surge in July (revised from a 4.4% gain).

Key Quotes

“Excluding the volatile aircraft and defense categories, orders edged up another 0.2% on top of a 0.6% rise in July and 0.5% increase in June. Similarly, core capital goods orders (a proxy for capital spending) were up for the third straight month, rising by 0.6% in August. Admittedly, the slight gain in recent months is nothing to get too excited about, but at least it stopped the earlier weakness.

So far in Q3, core capital goods orders are up at a 5.9% annualized rate versus the Q2 average. These key orders data had declined in each of the prior three quarters (the weakest stretch since the recession). In contrast, core capital goods shipments fell 0.4% in August—their fourth consecutive monthly decline. However, the slight pickup in orders bodes well for shipments in coming months.

All in, these data lend some support to our assumption for business spending on equipment in the Q3 real GDP report (due in late October). We look that component to have edged up by a modest 2% annualized pace in Q3. We have been noting the risk that business investment remains soft through much of 2016, due largely to the uncertain environment globally and ahead of the US presidential elections. The latest data are consistent with the “wait-and-see attitude” among business decision makers.

In August, defense spending jumped by another 16.3% (after 17.4% in July), while civilian aircraft orders fell by 21.9% (after a 73.7% surge in July). Away from those two volatile categories, details were little changed in August. The automotive sector showed bookings up 0.7% and primary metals component nudged up 0.2%, while electrical equipment and appliances (2.5%), machinery (0.5%) and computers/electronics (0.2%) showed modest decreases.”