Wells Fargo: US Core Cap Goods Orders Could Ease Inflation Pressure

Wells Fargo points out that while today's Apr durable goods headline figure disappointed (-1.3% M/M, vs +0.8% expected), core capital goods orders saw an "impressive" +2.3% M.M reading (vs +1.0% expected) "in a sign that broad capacity constraints are supporting new investment." That was even more impressive considering upward revisions to March data (+1.6% vs +1.2% previously recorded).

• They argue that such new investment "could take the edge off some recent inflationary pressures and support the Fed's view that the current pace of inflation is temporary, and that the supply side of the economy will adjust to meet the impressive demand environment."
• They attribute the durable goods decline largely to a 25.8% drop in defense spending, and "some weakness in sectors that might be feeling the pinch from various supply chain shortages like motor vehicles as well as electrical equipment."
• Also of note: "orders outpacing shipments may also be another clue that material, parts and labor shortages could be holding up deliveries".

Source: Wells Fargo