Durable Goods: Strong gains Ex-Aircraft

Bottom Line: Durable goods orders saw further downside volatility due mostly to the production disruption at Boeing. However, core goods orders excluding aircraft were stronger than expected. And despite some negative revisions to May data, there are signs of improvement in core durable goods orders after weakness in 4Q18 and 1Q19. On net, nondefense capital goods shipments, key proxies for GDP investment, rose in Q2 relative to the 1st Quarter, suggesting a positive impact from business investment on 2Q GDP. Overall, expect continued volatility due to Boeing's 7373 Max production shutdown, but it appears that externalities spreading into "core" segments are limited with both core goods orders and capital goods shipments ex-air stabilizing over the last three months. Durable Goods Orders ROSE by 2.0% in June, compared with market expectations for an increase of 0.7%. Moreover, the prior month was revised lower from -1.3%to -2.3%. Transportation Orders ROSE by 3.8% with civilian aircraft orders climbing by 75.5% while motor vehicle orders climbed by 3.1%. Ex-transportation orders ROSE by 1.2%. Core Durable Goods Orders, those excluding both civilian aircraft and defense, ROSE by 1.95% and are 2.3% ABOVE their year ago level. Nondefense Capital Goods Shipments ROSE. Including civilian aircraft, they ROSE by 1.5% and excluding them they ROSE by 0.6% Durable manufacturing inventories ROSE by 0.3%. Nondefense capital goods shipments ex-aircraft, proxies for equipment and software investment, are modestly above their Q1 level, suggesting that capital spending will likely make a positive contribution to Q2 GDP growth.