July Durable Goods rose a much better than expected 4.9% vs the estimated gain of 3% but ex transports, new orders rose .8%, .1% less than expected. The June data for both headline and ex transports were revised higher. Non defense capital goods ex aircraft, the core capital spending component, fell .3% after healthy gains in the two prior months and is why the S&P futures likely traded modestly lower after the report. Leading the headline gain was a 107.2% rise in nondefense aircraft and a .9% gain in vehicles and parts (as many auto plants ramped up again). Orders for computers/electronics, electrical equipment, primary metals and fabricated metals rose while machinery fell by 6.6%. Shipments (gets directly plugged into GDP) rose 2%. The inventory to shipments ratio fell to 1.81 from 1.87 and to the lowest since Dec ’08 as total inventories fell by .8%, down for a 10th straight month but the pace of decline was the smallest since Feb. Bottom line, the data further confirms stability as ex transport new orders are up for a 3rd straight month but still remain lower by 20.4% y/o/y and thus reflects that even a modest reversion to the mean can lead to a sharp rebound in orders. The key is whether the rebound expands beyond the auto sector.
