Durable Goods Broadly Miss Expectations, Push 10 Year To 2.44%, Lowest Since January 2009

Capital goods orders widely miss expectation, coming in at +0.3%, on a consensus of +2.8%, with the previous -1.2% drop revised to just -0.1%. Durable goods ex transportation came in at -3.8%, on expectations of 0.5% (previous -0.9% revised to 0.2%). And the kicker - non-defense capital goods ex. aircraft came in at -8.0% M/M versus expectations of 0.4% (with the previous print of 0.2% revised far higher to 3.6%). The 10 Year has hit 2.439% on the news. Goldman is pretty laconic: "This report is weak and much worse than expected." Pretty much game over for the reflation scenario. Check to you Bernanke - the only option left is the nuclear one.

Goldman's summary on the results:

A Slump Outside Aircraft

BOTTOM LINE: This report is weak and much worse than expected. Orders were roughly flat in July, but only because of a large increase in orders for civilian aircraft. Elsewhere, demand for hard goods fell sharply, with capital goods orders erasing most of the prior two months' gains. Upward revisions to data for the prior month take a bit of the sting out of this report, and push our estimate for the Q2 GDP revision to 1.2% from 1.1% previously.

Durable goods orders -12 (4, -3).

Durable goods orders +0.3% in July (mom, +8.6% yoy) vs. GS +4%, median forecast +3.0%.

1. Orders for durable goods edged up 0.3% in July, but this masked slumps in many sectors as bookings for civilian aircraft rose sharply. We tend to look through the aircraft orders because they are lumpy and because lead times to production are much longer than for most other durable goods. In other types of capital goods, orders fell 8%, wiping out most of the gains of the preceding two months.

2. One moderating factor in this report was an upward revision in the data for June, to -0.1% from -1.2%. This included a mark-up of shipments of capital goods, which restores 0.1 point to our estimate for Friday's revision to the second-quarter growth rate. We now expect that figure to be revised to a 1.2% annualized rate of growth, versus 1.1% previously. However, on balance, this report is yet another sign that the US economy is losing momentum as it moves into the second half of 2010.

Some highlights from the release:

Computers and electronic products, down following four consecutive monthly increases, had the largest decrease, $0.5 billion or 0.4 percent to $121.1 billion.

Inventories continue to grow:

Inventories of manufactured durable goods in July, up seven consecutive months, increased $1.8 billion or 0.6 percent to $311.2 billion. This followed a 1.3 percent June increase.

Machinery, up five consecutive months, had the largest increase, $0.9 billion or 1.9 percent to $51.4 billion.

Capital goods:

Nondefense new orders for capital goods in July decreased $1.8 billion or 2.8 percent to $64.1 billion. Shipments increased $0.9 billion or 1.4 percent to $64.7 billion. Unfilled orders decreased $0.6 billion or 0.1 percent to $487.2 billion. Inventories increased $1.0 billion or 0.8 percent to $129.8 billion.

Full release.





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