Strong Durable Goods Headline Number, Very Weak Between The Lines: "Weak Start To 3Q" Bloomberg's Yamarone

Once again we get a strong durable goods numbers report at the headline level, but far weaker when one actually reads it instead of just scanning it: with the July Durable goods printing well above expectations, at 4.0%, double expectations of 2.0%, and up from an upwardly revised -1.3%. Ex-transportation, the number was up 0.7%, beating the estimate of -0.5%, virtually unchanged with the previous upwardly revised 0.6%. What is, however, not good is that cap goods non-defense ex aircraft dropped by -1.5%, in line expectations, and a plunge from an upward revised 0.6%: this shows that actual CapEx is plunging. The bulk of the beat comes due to stronger than expected automotive-related production. Futures surge on the news because a continent wide liquidity squeeze is less important than the future channel stuffing of more unsellable cars.

Report sumary from Bloomberg:

  • July durable goods orders rose 0.4% vs est. 2% (range 1% drop to 7.5% gain); June revised to 1.3% drop from 2.1% decline.
  • Ex. transport rose 0.7% vs est. 0.5% drop (range 1.5% decline to 1% rise); prior revised to 0.6% gain from 0.1%
  • Capital goods orders, nondefense, ex. aircraft, parts, down 1.5% vs est. 1.6% decline (range 2.4% drop to 1% increase); prior revised to 0.6% gain from 0.4% drop
  • Weak shipments of non-defense capital goods excluding aircraft “suggests weak start to 3Q,” says Bloomberg economist Rich Yamarone
  • Above est. overall orders due to 43.4% rise in civilian aircraft, motor vehicles orders, says Bloomberg economist Joseph Brusuelas
  • Key question: whether demand for autos will continue through rest of the year given weak macroeconomic environment: Brusuelas

Answer: hell no