July Capital Goods New Orders Fall for First Time in Three Months

According to the Census Bureau, real capital goods new orders in July 2013 were $76,825 million. This is a decrease of 8.8% compared to July 2012. July is the first month of contraction in the monthe-over-month rate of change after three straight months of growth. After one month of growth, the annual rate of changeis contracting again. It has contracted six of the last seven months.

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 disposable income are indicating that real consumer spending should continue to slow. It appears that real capital goods new orders will continue to contract.

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