Orders for U.S. durable goods drop for second straight month

Orders for long-lasting U.S. factory goods declined for the second straight month in May, as demand for cars, metal products and aircraft fell.

The Commerce Department said Wednesday durable goods orders—items meant to last at least three years, from washing machines to tractors—dropped 0.6% last month. That followed a steeper drop of 1% in April.

Removing the transportation category, which includes cars and aircraft, orders were down 0.3%, “with weakness appearing to be broad-based,” leaving core capital goods orders down 0.2% on the month, notes CIBC economist Katherine Judge in emailed commentary. “That said, upward revisions to the prior month helped offset some of the weakness seen in May’s numbers.”

Even with May’s decline, factory output has expanded this year. Businesses and consumers are increasingly confident and are spending more.

Says Judge: “While the 3-month average annualized pace of core orders came down a bit, it’s still running at a healthy pace, and we expect that to continue and possibly accelerate as business spending benefits from tax reform.”

Trade weighs on manufacturers

American manufacturers are in the centre of a growing storm over international trade that may be starting to weigh on output. The Trump administration and Europe, China and Mexico have slapped punitive tariffs on each other’s factory goods.

The U.S. has imposed stiff duties on steel and aluminum, and is preparing to place 25% tariffs on US$50 billion of imports from China. Europe, Mexico and China have already imposed retaliatory tariffs, and China is threatening to do more.

Read: Growing trade tensions call for investor vigilance

The duties have raised the prices of steel and aluminum in the United States, likely disrupting industrial supply chains. Orders for raw metals fell 0.4% in May. That followed large gains in April and March, which may have reflected an effort by many manufacturers to stock up on steel and aluminum before the full force of the tariffs hit.

Read: Are your clients at risk from protectionism? Experts weigh in

Orders for fabricated metal parts and components also dropped, falling 1.2%, following two months of strong increases.

Demand for computers, electrical equipment and appliances, and cars also declined. Industrial machinery and communications equipment were the only categories to show increases.

Judges notes that May’s advance goods trade deficit was narrower than expected, in part because of strength in exports—in food and capital goods, among others.

Overall, she says, today’s data are “somewhat offsetting and haven’t cause[d] much of a reaction in markets.”

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