Core Durables Remain Soft, Reinforcing Subdued Goods Production Outlook

Durable goods orders unexpectedly picked up in May by 0.1% M/M, vs -0.5% survey - though core capital goods (nondefense ex-aircraft) orders were weak at -0.6% (+0.1% expected).

• Revisions were mixed: April's overall durable goods orders growth was revised down to 0.2% from 0.6%, partially accounting for May's unexpected sequential rise, while core capital goods orders were revised up to 0.3% from 0.2%.
• Volatile components played a part in the overall beat versus consensus, with defense aircraft/parts up 22.6% M/M, the biggest monthly jump in over a year to a 9-month high seasonally-adjusted level.
• But the core capital report was soft, as shipments contracted for the 3rd month in the past 4 at -0.5% M/M, erasing April's 0.4% gain.
• Looking at the bigger picture, core capital orders are at roughly the same level they were in early 2023 on a seasonally-adjusted basis, while core shipments remain at year-ago levels.
• That reinforces the view that activity in the US goods-producing sector remains subdued, reflected in contractionary ISM manufacturing readings and sub-0.5% Y/Y growth in industrial production.