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Industries’ New Orders Fall for the First Time in 6 Months

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Non-defense capital goods data

Data on core capital goods orders, which exclude aircraft and defense purchases, is released by the US Census Bureau monthly. Investments in machinery, tools, and equipment by industries require capital outlay, and companies make them only when there is an expectation of increased demand.

All new orders, shipped goods, and company inventories are considered durable goods. Durable goods orders have a weight of 4% in the Conference Board Leading Economic Index (or LEI), and did not affect it in August.

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Recent economic data

According to the recent LEI, in August, core capital goods orders were valued at $37.48 billion, compared with $37.52 billion in July, marking the first drop since February. An increase in core capital goods (VIS) orders is considered a positive sign for the industrial sector (IYJ). Large-scale investment in capital goods reflects business owners’ confidence in their industry.

Market impact of core durable goods orders

Companies in the shipping (SEA) and capital goods (DXJC) industries stand to benefit from increases in core durable goods orders. The industrial sector’s performance has a considerable effect on major US indexes such as the S&P 500 (SPY) and the Dow 30 (DIA). In the next part of this series, we’ll analyze how the housing sector dragged down the LEI’s August results.

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