US Durable Goods Orders: Impressive Increase in Underlying Capital Orders

Data released Thursday showed an unexpected drop in durable goods orders in April. According Wells Fargo analystsThe 1.3% drop in durable goods orders reflected supply chain problems that continue to hamper auto production and a sharp drop in defense spending.

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“The 1.3% drop in durable goods orders in April reflected supply chain problems that continued to hamper auto production and a sharp drop in defense spending. Hidden under the headline was an impressive 2.3% increase in orders for basic capital goods, a sign that extensive capacity constraints are supporting new investment. That could ease some recent inflationary pressures and support the Fed’s view that the current pace of inflation is temporary and that the supply side of the economy will adjust to meet the impressive demand environment. “

“The strong performance of capex should help current inflationary pressures dissipate in the future and support the Fed’s current thinking that the supply side of the economy will tighten and bottlenecks should ease over time. weather”.

“The fact that both basic capital goods orders and shipments are growing is a positive development, although orders outpacing shipments may also be another clue that a shortage of materials, parts and labor could be on. delaying deliveries. “

“The next few months will likely highlight shortages and imbalances in our opinion and cause some of these bottlenecks to halt production. Once again, motor vehicle production is likely to be the model for this dynamic. “

“To the extent that the recent acceleration in orders for underlying capital goods indicates an increase in investment in equipment to address supply constraints, there may be a broadening of the manufacturing production base that could offset some of the drag expected from motor vehicle production “.