June Durable Goods Orders Disappoint

June Durable Goods Orders were disappointing, as they failed to catch up to the strength seen in recent manufacturing surveys.  They could be showing that companies are not investing in new capital equipment, despite some improvement in sentiment.  Or, they could be showing that demand from abroad for US durable goods continues to be hurt by the stronger dollar or weakness in non-US economies.  In either case, the data are likely to reinforce the cautious view of some Fed officials.  Today's FOMC Statement is likely to repeat that "business fixed investment has been soft." 

The weakness in Durables argues against a Fed rate hike in September.   As such, it is a positive for both stocks and Treasuries.

Here are a few key points:

1.  While the underlying Core Durable Goods Orders (Non-defense Capital Goods Excluding Civilian Aircraft) edged up 0.2% m/m, they remain below the Q216 average as well as the averages of the prior two quarters.  They do not bode well for capital spending in Q316.

2.  Core Durable Goods Shipments fell for the 2nd month in a row, and Durable Goods Inventories fell, too.   These are inputs into Q2 GDP and work to hold down the latter.   The Fed model estimates are likely to remain at 2.2-2.4% (q/q, saar).   Possibly, the NY Fed's early projection of Q316 GDP could be revised down from the the 2.6% estimate.

3.  To be sure, the 4.0% drop in Total Durable Goods Orders exaggerates weakness, as it was depressed by declines in volatile civilian aircraft orders (hurt by seasonal factors, as well) and defense orders.