Aircraft had been the strength but is now the weakness for durable goods which, pulled down by a second straight downswing for commercial aircraft, fell 1.1 percent in May. When excluding transportation, a reading that excludes aircraft, orders actually rose, but not very much at only 0.1 percent which falls 4 tenths shy of Econoday's consensus. An unquestionable negative in the report is an unexpected 0.2 percent decline for core capital goods orders (nondefense excluding aircraft).
Orders for commercial aircraft fell a rounded 12 percent for a second straight month with orders for defense aircraft, which are always volatile, also hurting May, down 31 percent. Shipments of core capital goods, like orders for this category, are another weakness in the report, down 0.2 percent and when combined with April's tiny 0.1 percent gain, don't point to any punch at all for business investment in second-quarter GDP.
But there are positives in the report including a solid 0.6 percent jump in machinery orders, a category that helped limit the monthly dip in capital goods. Vehicles are also a positive with a strong 1.2 percent gain that follows a 0.5 percent rise in the prior month. Shipments of vehicles are on a similar climb.
Other readings include a 0.8 percent gain in total shipments that follows, however, two prior declines and an unwanted 0.2 percent decline in total unfilled orders which is once again back in the contraction column. Inventories rose 0.2 percent which is about in line with the rate of general activity.
This report isn't all bad but the capital goods readings are a tangible disappointment for the second-quarter outlook, pointing to lack of confidence in business prospects. The data contrast sharply with the ongoing strength in regional surveys. But in actual government data, the factory sector isn't having a breakout year as some had hoped.
Orders for core capital goods have managed only a 1 tenth monthly gain over the last 3 reports and that was way back in February. Shipments for this component have moved in line, falling 1 tenth to open the second quarter in April. Other readings in April were far worse with total orders falling 0.7 percent and ex-transportation orders (where monthly swings in aircraft are excluded) down 0.4 percent. Econoday's consensus for May durable goods orders is for another decline, at minus 0.4 percent and reflecting an expected downswing for aircraft. But ex-transportation orders are seen at plus 0.5 percent with core capital goods, in what would be a strong positive, also seen up 0.5 percent.