New orders for durable goods increased 1.1% in May
Supporting Image for Blog Post

 
Implications: New orders for durable goods rose more than the consensus expected in May, up 1.1%, and the underlying trend remains favorable, up a healthy 4.6% in the past year. The gain in May was mostly due to the transportation sector, which is very volatile from month to month, but orders were still up 0.4% even excluding transportation. We expect this number to pick up steam over the rest of the year. Unfilled orders (ex-transportation) are up 9.1% in the past year and are now at record highs. Also, we are in the early stages of a home building recovery. As housing continues to improve, orders for durables should pick up as well. Shipments of "core" capital goods (which exclude defense and aircraft) rebounded in May after dropping steeply in April. These shipments have dropped in the first month in nine of the past ten quarters, with a rebound in the following two months. So if the trend continues we should see this number higher in June. Business investment should continue to grow. Monetary policy is loose, interest rates are extremely low, and profits are at record highs while companies have record amounts of cash on their balance sheets. Moreover, capacity utilization at US factories is approaching its long-term norm, meaning companies have a growing incentive to update their equipment. In other recent manufacturing news, the Richmond Fed index, a measure of factory activity in the mid-Atlantic, declined to -3 in June from +4 in May. A negative reading, suggesting some contraction, is not good, but the index was -10 in August last year while the US economy was still growing. In other words, the decline does not signal a recession. Meanwhile, the housing market shows marked improvement. The Case-Shiller index, which measures home prices in the 20 largest metro areas, increased 0.7% in April (seasonally-adjusted), with 17 of the 20 metro areas showing price increases. Although prices are still down 1.9% from a year ago, they are up at a 6.2% annual rate in the past three months.

Click here for a PDF version.
Posted on Wednesday, June 27, 2012 @ 9:26 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.