US durable goods order

On June 26, the Department of Commerce released the May preliminary report on durable goods. The headline number showed that the overall durable goods order fell 1.3% in May compared to a fall of 2.8% in April. While the consolidated durable goods data showed continued weakness and missed economists’ estimates, we need to look at the data in more detail.

The core capital goods order, which is non-defense capital goods excluding aircraft, increased 0.4% in June. The shipments increased 0.7% in June. The core capital goods data acts as a proxy for companies’ investment. The data was better than expected last month.

Transportation sector

The transportation sector was the biggest drag on the durable goods sector in May. Transportation equipment orders fell 4.6% in May. Looking at subparts in the transportation sector, the orders for motor vehicles and parts increased 0.6%. However, the orders for non-defense aircraft and parts fell 28.2%. The orders for defense aircraft and parts also fell 15.3% last month.

The transportation sector was a drag on durable goods orders in the first quarter. US automotive companies like Ford (F) and General Motors (GM) are battling slowing vehicle sales. US automotive sales have moderated after peaking in 2016. Automotive companies have been trying to cut inventories. Along with falling sales in the US, Ford and General Motors are battling lower car sales in China—the world’s biggest automotive market.

Aircraft drag

The biggest drag on May durable goods data has been fewer aircraft orders. Boeing (BA) didn’t receive any new aircraft orders in May. Boeing’s 737 MAX was grounded earlier in 2019 due to a series of fatal crashes. At the Paris Air Show, General Electric (GE) was a surprise winner. So far, General Electric has gained 40% in 2019. The stock has outperformed the S&P 500. The SPDR S&P 500 ETF (SPY) has risen 17.4% in 2019. While business investment rebounded in May, the data released on June 25, showed a big fall in the US consumer confidence index.

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Economic Data and Earnings Before the Fed's Meeting

WRITTEN BY Mohit Oberoi, CFA

Economic data and earnings will keep investors busy this week. More than a quarter of the S&P 500 companies are scheduled to release their earnings.