Durable Goods—What Do the Numbers Really Say?

Durable goods orders, a measure of current industrial activity, provides more insight into the supply chain. This monthly economic indicator is useful for investors and analysts gauging the earnings and activity in industries such as machinery, technology manufacturing, and transportation. A high durable goods number indicates an economy on the upswing while a low number indicates the opposite.

For May, headlines stated a jump in the indicator, up 2.3% in May. However, consensus was 2.9%, and the jump was from a negative 1.3% read in April. During April, orders for long-lasting goods fell for the first time in a year due to chip shortages affecting automakers and stemmed almost entirely from a big drop in bookings for new cars and trucks.

While positive, the weaker-than-expected manufacturing data is another byproduct of COVID-related supply-chain issues. Breaking out the numbers, new orders (ex-transportation) rose +0.3% vs. +0.7% consensus. Excluding defense, new orders rose 1.7%. Transportation equipment, up after two straight months of declines, rose 7.6%.

So while durable goods rose in May, the data was below expectations. As COVID numbers decline and social restrictions end, will supply-chain issues begin to resolve and manufacturing return to pre-pandemic levels?