Capital Goods Orders See Largest Spike Ever

According to the Census Bureau, real capital goods new orders in July 2014 were $136,413 million. This is the highest monthly total of capital goods new orders ever. And, orders in July 2014 were 75.1% higher than they were in July 2013. The dramatic surge in capital goods new orders was due to an incredible increase in aerospace new orders. In July 2014, aerospace new orders increased an amazing 388% compared to last July. Since February 1992, monthly aerospace new orders have represented an average of 16% of total capital goods new orders. In July 2014, aersoapce new orders were a whopping 53% of all capital goods new orders. Even over the last year, aerospace orders have been making up a larger share of all capital goods new orders. As a result of the surge in new orders this month, the annual rate of change has jumped to 8.7%, which is the fastest rate of growth since April 2012.

This leading indicator is positive once again for future 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. Since October 2013, the annual rate of change in real consumer spending has been virtually unchanged. Unless the rate of growth in real consumer spending accelerates it is likely that further accelerating growth in capital goods new orders will be limited.

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