Capital Goods New Orders Grow Most Since July 2012

According to the Census Bureau, real capital goods new orders in May 2013 were $89,310 million. This is an increase of 12.7% compared to May 2012. This is the first consecutive month-over-month increase since June-July 2012 and it is the fastest rate of month-over-month growth since July 2012. While the annual rate of change contracted for the fifth straight month, the rate of contraction has slowed the last two months. Real capital goods new orders appear to have bottomed, which is a very positive sign durable goods manufacturing and capital equipment spending.

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 April 2012, the rate of growth in real consumer spending has been virtually constant. But, there trends in real personal income are indicating the 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.