Don't Be Confused: Durable Orders Confirming Soft Q2 US GDP

The headline increase in the June durable goods order report is misleading for those thinking about next week's Q2 GDP report. The consensus had expected a 1.4% increase and instead jumped 4.2%, while the May series was revised higher to 5.2% from 3.6%.  Those data surprise models that are popular on Wall Street would take note.  

However, for GDP purposes, the shipment of durable goods excluding transportation and defense goods, is more important and this measures fell 0.9% after a 1.9% increase in May.  The consensus had expected a 1.1% increase.    This is the more important surprise and underscores the likelihood of a sub-1% GDP report next week.  

Recall that in next week's GDP estimate, there will also be methodological adjustments to include intangibles.  This is expected to increase size of the overall economy and not have much impact on the quarterly pace of growth.  

The rise in durable goods orders was solely because of transportation equipment.  Excluding them, and the report was flat.  The market had expected a 0.5% increase.  The impact may be muted by the fact that the May series was revised up to 1% from 0.7%.  

A promising development today's report, but also other data from the manufacturing sector, is that unfilled orders are rising faster than inventories.  This is expected to lead to new output in Q3.  That said, a similar argument was made for Q2 that proved for naught. 

The US Treasury market firmed slightly after the data, while the dollar has softened across the board, returning to, or making new session lows. The euro moved back to session highs, recovering fully from the drop following the poor money supply and lending data.  Sterling, for its part, has recovered from the profit-taking after the as-expected GDP report and is moving back above $1.5300. The dollar slipped further against the yen.  The dollar-bloc moved to new highs for the day.  


Don't Be Confused: Durable Orders Confirming Soft Q2 US GDP Don't Be Confused:  Durable Orders Confirming Soft Q2 US GDP Reviewed by Marc Chandler on July 25, 2013 Rating: 5
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