U.S. Durable goods activity boosted by autos in June

*The U.S. June Durable Goods Report showed strong increases in orders and shipments, led by the motor vehicles and parts sector (Chart 1). This is consistent with the strong rebounds in vehicle sales and railroad shipments of motor vehicles and parts across the U.S. (Chart 2). Growth in orders and shipments excluding motor vehicles also picked up in June, but at a relatively moderate pace.

*Headline durable goods orders increased by 7.3% m/m in June, driven by an 85.7% m/m increase in motor vehicles and parts orders (Chart 3). Core durable goods orders (nondefense capital goods ex aircraft), which reflect underlying demand for manufactured goods, increased by 3.3% m/m in June, double the May increase (+1.6% m/m), placing it 3.2% below February’s level (Chart 4).

*Durable goods shipments surged by 14.9% m/m, primarily due to the 83.1% m/m increase in shipments of motor vehicles and parts. Shipments of nondefense capital goods, which factor directly into GDP, increased by a solid 4.4% m/m in June; however, after its slight 0.3% increase in May and 13.5% decline in April, it remains 8.6% below February’s level (Chart 5).

Seven of the nine primary categories of durable goods shipments increased in June, with shipments of computers and related products (-8.1% m/m) and communications equipment the lone exceptions (0% m/m). Despite the June decline, communications equipment shipments have far outperformed other categories, running 3.2% above February’s level, reflecting increased demand from the shift to the work-from-home environment (Chart 6). Shipments of aircraft & parts remain furthest below February’s level (-41.8%). See Chart 7.

The durable goods inventory-shipments ratio tumbled to 1.87 in June from the second highest ratio on record in May (2.15) as the jump in shipments far outpaced the slight 0.1% m/m increase in inventories. The ratio should fall further in July as shipments continue to rebound.

Over the summer months, growth in U.S. manufacturing activity may actually outpace consumer activity, as factories in states experiencing spikes in incidence of COVID-19 are allowed to remain open and high-risk retail activities remain shut down. Key regional manufacturing sentiment indexes indicate that manufacturing activity continued to increase in July (Chart 8). Additionally, countries that are ahead of the U.S. in slowing the transmission of COVID-19 will continue to buy U.S. manufactured goods – the weaker U.S. dollar will also help.

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Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
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