TD Economics

July 28, 2010

Data Release: June’s Durable goods orders fare worse than expected
• New orders for durable goods tumbled 1.0% M/M in June, in stark contrast with market expectations for
an increase of the same magnitude. Details on the report show weak performances across the board,
with the largest declines coming from the usually volatile transportation equipment component, but also
computers and electronics, and primary metals.

• Excluding transportation equipment orders, the decline in new orders was smaller at 0.6% on the month,
contrasting with May’s 1.6% expansion.

• On a year-ago basis, total durable goods orders are up 15.9% from a revised 15.1% the prior month. In
addition, orders excluding transportation are now up 15.0% Y/Y, compared to the average 18.5% Y/Y
expansions observed during the previous three months.

• On the flip side, non-defense capital goods orders excluding aircraft (referred to as core orders) inched
up 0.6% on the month, which follows a 4.5% expansion in May.

• Durable goods inventories rose 0.9% M/M, driving the inventory-to-shipments ratio up to 1.58 from 1.56
prior.
Key Implications
• Durable goods orders’ performance has been a bit disappointing in the last two months. However,
these results are somewhat tempered by the gains observed on the previous five months and the
volatility that characterizes this aggregate. Granted, if gains continue to be made at the pace of the last
two quarters, it would take 29 months to reach the pre-recession peak.

• In any case, the annual expansion in durable goods orders is falling in line with the moderation we have
been anticipating for the overall economy, which we expect to decelerate to 2.1% Y/Y growth during the
second quarter from 2.7% prior.

• On the other hand, the strong gain in core capital goods orders signals a corresponding strong
expansion in investment spending during the second quarter. The former closed that period with an
average annual expansion of 19%, much stronger than in the first quarter, and this speaks to the
strength we expect to see in the latter come Friday.

Martin Schwerdtfeger, Economist

416-982-2559

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