Durable Goods in the US Take A Big Dip

New US orders on durable goods fell for the second straight month in May, largely complications at Boeing impacting demand for aircraft.  But the consecutive decline suggests a bigger issue in the manufacturing sector that will persist, even if business spending on equipment stabilizes.

The new report, from the United States Department of Commerce, was released on Wednesday but it doesn’t change anything from the week prior. If anything, the report added more drama to already weak data on trade, further dragging consumer confidence, housing, and employment growth in the process.  

Indeed, orders for durable goods—a category which contains a variety of products from toasters and appliances to aircraft (things that are intended to last at least three years)—fell 1.3 percent last month. This comes after a larger 2.8 percent decline in April.  Some economists had forecast durable goods to slip only 0.1 percent in May.  Obviously, this is quite a disparity. 

On top of that, orders for transportation equipment slipped 4.6 percent, which also compounds a 7.6 percent dive in April. This contributes a massive decline in non-defense aircraft orders, but more than 28 percent.  Orders for civilian aircraft was hit the hardest, plummeting more than 39 percent, also in April. 

And then, weak business spending is pulling down US factory production.  The manufacturing sector accounts for approximately 12 percent of the US economy and spending adds to the glut of problems in this sector, including inventory surplus—particularly in the automobile industry—which continues to lessen orders at US factories. 

Next month, the US economy was expecting to notch a record 10 years of expansion but we are seeing a notable loss of momentum in a shrinking of confidence among both consumers and businesses.  And, of course, all of this hinges on the escalating trade tensions between the US and China. 

Indeed, momentum is losing speed as we near the end of Q2, as US President Trump’s $1.5 trillion (corporate) tax cut package trickles out and his glut of government spending starts to fade.  The economy, then, faces more risk when you consider it comes at a time when low inflation has encouraged the Federal Reserve to signal an interest rate cut; this could come as early as July.