After reporting a sharp jump in new orders for U.S. manufactured durable goods in the previous month, the Commerce Department released a report on Friday showing a sharp pullback in durable goods orders in the month of July.
The Commerce Department said durable goods orders plunged by 6.8 percent in July after surging up by 6.4 percent in June. Economists had expected durable goods orders to slump by 6.0 percent.
The bigger than expected pullback in durable goods orders was due to a steep drop in orders for transportation equipment, which tumbled by 19.0 percent in July after spiking by 19.1 percent in June.
Orders for non-defense aircraft and parts showed a particularly sharp decline, plummeting by 70.7 percent in July after soaring by 129.3 percent in the previous month.
The significant decrease came as aerospace giant Boeing (BA) reported just 22 aircraft orders in July compared to 184 in June.
The report also showed a continued decline in orders for motor vehicles and parts, which fell by 1.2 percent in July after sliding by 0.7 percent in June.
On the other hand, orders for defense aircraft and parts jumped by 47.8 percent in July after climbing by 5.6 percent in June.
Excluding the drop in orders for transportation equipment, durable goods orders increased by 0.5 percent in July after inching up by 0.1 in June. Ex-transportation orders had been expected to rise by 0.4 percent.
The increase in ex-transportation orders reflected notable growth in orders for electrical equipment, appliances, and components, computers and electronic products, and fabricated metals.
The report also said orders for non-defense capital goods excluding aircraft, a closely watched indicator of business spending, rose by 0.4 percent in July after coming in unchanged in June.
Shipments in the same category, which are used to calculate GDP, climbed by 1.0 percent in July following a 0.6 percent increase in the previous month.
Michael Pearce, U.S. economist at Capital Economic, said the steep drop in headline durable goods orders is nothing to worry about, since it entirely reflects a pullback in orders in the volatile aircraft category
"The more important news was that non-defense capital goods orders and shipments both rose strongly in July," Pearce said.
He added, "With business surveys pointing to a further acceleration in core goods orders and business confidence elevated, investment growth looks set remain strong over the rest of this year."
by RTT Staff Writer
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