US: Nosedive in durable goods orders mostly aircraft - Wells Fargo

Analysts from Wells Fargo,  point out that durable goods orders more than reversed the aircraft-fueled surge of June in July amid continued weakness in the auto sector.

Key Quotes: 

“Durable goods orders fell 6.8 percent in July, which was a bit worse than the 6.0 percent drop expected by consensus. We knew following last month’s 129 percent surge in nondefense aircraft orders that there would be payback in August. Sure enough, civilian aircraft orders tumbled 71 percent, dragging down the headline.”

“In addition to a pullback in nondefense aircraft, the transportation sector was held down by the continued soft patch in autos. Orders for new vehicles and parts fell 1.2 percent. Seasonal adjustment in the auto sector can be difficult this time of year given the changing pattern of summer shutdowns, but orders have now fallen in five of the first seven months of the year. Inventories at auto dealers have been piling up amid slower sales, so the pullback in orders and production is not terribly surprising.”

“Outside a volatile month for an already volatile part of the report, orders were stronger. Excluding transportation, orders came in a shade better than expected, increasing 0.5 percent.”

“We currently expect equipment spending to rise about 6 percent in the current quarter.”

“While durable goods represent only a slice of nonfarm inventories (also included are wholesale, retail and nondurable manufactured goods), and this is only the first monthly reading of the quarter, today’s gain lends support to our call for inventory growth to pick up in the third quarter and boost headline GDP.”