Economic News Blog
Posted by: Steven Kline, Jr. 6. July 2015

Capital Goods Orders Contract 12.6 Percent in May

Real capital goods new orders in May 2015 were $75,466 million. This was the lowest level of real new orders since January 2011. Orders in May 2015 were 12.6 percent lower than they were one year ago, which was the fastest rate of contraction since July 2013. May was the second month in a row that new orders contracted more than 12 percent. Also, this was the seventh month in a row that the month-over-month rate of change contracted. Tthe annual rate of change clearly has decelerated since October 2014. The annual rate of growth is now 1.8 percent, which is the slowest rate of growth since June 2014. The annual rate of change will likely begin to contract when July 2014's record orders move into the comparison year. Therefore, capital goods orders are pointing toward slower capital spending. Total capital goods new orders tend to lead industrial production by three months and capital spending by 18 months on average based on long-term historical correlations. 

A good leading indicator for real capital goods new orders is real consumer spending. In the last couple of months, the month-ove-month rate of change in real consumer durable goods spending has been growing but the rate of growth has stabilized. The annual rate of change in total consumer spending has been accelerating though. This indicates that real capital goods new orders could bottom out in the next three to six months.

We use real capital goods new orders to forecast activity in metalcutting job shopsmetalworking, and durable goods.

 

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