MAPI Analysis on Durable Goods: Report ‘Worrisome’ Despite Increase
The following is an analysis from Daniel J. Meckstroth, Ph.D., Vice President and Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), regarding the durable goods report for July 2012.
“The U.S. Census Bureau reported today that durable goods orders for July increased 4.2 percent, after rising 1.6 percent in June. On the surface this looks like very positive results; however, there were major declines in the orders for machinery, communications equipment, and electrical equipment and appliances in June and July,” Meckstroth said. “The report shows that the gains over the last two months came from very large orders for civilian aircraft and parts. These are very long lead-time orders that are positions in a multiyear queue and do not reflect future production activity over the next three to six months. A more relevant indicator of the nearer term is nondefense capital goods orders excluding aircraft, which declined 3.4 percent in July and fell 2.7 percent in June. Order activity for these products is an important indicator of business confidence in the strength and direction of the economy.
“The bright side of the report was that motor vehicle orders surged 12.8 percent in July,” Meckstroth added. “Consumers and firms need to change aging autos and trucks, for which replacements were postponed during the long recession and sluggish recovery and expansion. In addition, aerospace production continues to ramp up, which benefits many manufacturing industries directly and indirectly. Nevertheless, the July durable goods orders report is worrisome. Capital goods producers are working down order backlogs and need new orders to lead the sluggish economy.”