Aircraft orders and auto orders made for a surge in the manufacturing sector during July, another key factor suggesting that the recession has already come to an end. New orders for durable goods shot up 4.9 percent. Excluding an 18.4 percent surge in transportation, orders still rose a strong 0.8 percent. Civilian aircraft orders rose more than six fold while motor vehicle orders, likely boosted by cash for clunkers, rose 0.9 percent. Capital goods orders were extremely strong, up 9.5 percent following a 5.7 percent drop in June. The report even includes an upward revision to the prior month's orders, to minus 1.3 percent from minus 2.2 percent. Details include big gains for primary metals, fabricated metals, computers & electronics, communication equipment, and even electrical equipment in a gain that hints at improving construction demand. Machinery orders did fall substantially but couldn't make a dent into the capital goods reading.
Shipments of durable goods also increased, up 2.0 percent in a gain that gets third-quarter output data off to a good start. Despite all the orders and shipments, manufacturers continue to draw down inventories which fell 0.8 percent to extend a long string of declines. Watch for the inventory index in the August ISM manufacturing report which may very well jump given how heavy July's business was. The jump in new orders has yet to move into unfilled orders which dipped 0.1 percent in the month.
The data had no significant impact on the financial markets, in part because a big gain was expected and in part because this report is often very volatile. Also, whether the gain in aircraft orders can be repeated is an open question and a retreat in this category could pull down data for August. Still, the manufacturing sector, the first to dip into recession, appears to be among the first sectors to have emerged from recession.
Market Consensus before announcement
Durable goods orders in June dropped sharply, largely on a plunge in civilian aircraft orders. Overall durable goods orders fell back a revised 2.2 percent in June, following a r boost of 1.3 percent the month before. The big negative in June was transportation which dropped a revised 13.2 percent within which civilian aircraft orders fell 38.6 percent. But excluding the transportation component, new durables orders advanced a revised 1.6 percent, following a 0.8 percent gain in May. Looking ahead, we may get another advance as the ISM new orders index for July jumped into positive territory again to 55.3 from 49.3 in June.