Capital Goods New Orders Grow 18.7% in June 2013

According to the Census Bureau, real capital goods new orders in June 2013 were $109,835 million. That is the fourth highest level of capital goods new orders ever. This is an increase of 18.7% compared to June 2012. This is the the third straight month-over-month increase and it is the fastest rate of month-over-month growth since February 2012. The annual rate of change, having contracted for five months, is now growing again. Sustained growth in real capital goods new orders would be a very positive sign for durable goods manufacturing.

Most economists and media outlets like to discount total capital goods new orders because aerospace orders are a significant portion of the total and are highly volatile. However, if you are a parts manufacturer those orders are just as important as any other. And, by using rate of change, especially annual rates of change, a lot of that volatility gets removed. The volatility is only a problem when you want to compared July to June for example. This is what most people do and is why they focus on core orders or orders minus aerospace and defense.

A good leading indicator for real capital goods new orders is real consumer spending. As consumers spend more on all goods, businesses need more capital equipment to make the goods consumers are buying. Since October 2011, the rate of growth in real consumer spending has been slowly decelerating. This correlates with slowing growth or an accelerating contraction in capital goods new orders. But, the trends in real personal income are indicating that real consumer spending should see accelerating growth soon. This should lead to more and faster growth in real capital goods new orders.

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