Durable Goods data yesterday crushed market expectations, coming out at 15.8% on a forecast of 10.3% for the month of May. Moreover, the core number, which excludes the orders for aircraft as they tend to be extremely volatile, also rose significantly – up 4.4% MoM, on a 2% estimate.
Overall, the core data is considered to be a better gauge of purchase order trends than the main Durable Goods release.
The data reflects the strong comeback of the American economy, and the only question now is if this is a temporary thing or the recovery continues?
Positive Data on All Segments
Durable Goods is released monthly, and the data refers to the prior month. These are so-called hard products, with a life expectancy of more than three years – a serious commitment for household consumption or government spending. Automobiles, appliances, computers, or airplanes fit in this category.
New orders in May rose 15.8% when compared with the previous month. Shipments rose too, 4.4% when compared with April, and inventories followed the same path – higher, albeit at a slower pace.
However, behind the eye-catching headline, the situation is more than delicate. As the chart above shows, March and April registered steady declines in all areas. Moreover, yesterday’s May data was accompanied by a lower revision for April, in almost all areas.
Also, when interpreting data and looking at percentages. Durable Goods declined in March and April, 16%, respectively 18%, and bounced strongly in May, 15.8%. But at this point, this is just a bounce, and nothing else. The overall level is far away from the level when the pandemic started and still shows a steady decline in Durable Goods orders. Consumers, once again, lack confidence in spending on goods that are not vital, such as food and other urgent necessities.
Nevertheless, the sharp rise exceeded analysts’ expectations, which is overall a good sign. It shows that positive economic surprises are still positive, despite extreme challenges for the American economy.
Moving forward, it is interesting to see how long it takes for Durable Goods to fully recover to pre-COVID-19 levels. The sooner it happens, the better.
That is especially important for the core data. As airlines suffer from the most severe decline in demand since the industry’s existence, the focus moving forward should be on the Core Durable Goods data, rather than the main headline.