Core durable goods orders unexpectedly drop 3.8 percent

Excluding the volatile component of transportation, orders for durable goods in July dropped 3.8 percent, or $5.5 billion, from June, to $140.4 billion. Including transportation, it edged up 0.3 percent, or $0.6 billion, to $193 billion.

The slight increase in overall orders came after two months of declines and the drop in core (excluding transportation) orders followed a slight dip in the previous month. The core orders contraction was also the most severe since January 2009.

Economists surveyed by Bloomberg expected a 0.5 percent increase in core orders and a 3 percent increase in overall orders. Douglas Borthwick, managing director at Faros Trading, said the numbers “shocked to the downside.”

Orders for machinery plunged $4.3 billion, or 15 percent, to $24.1 billion. Orders for computers and electronic products fell $0.7 billion, or 2.4 percent, to $26.7 billion. Orders for the transportation equipment jumped 13.1 percent to $52.6 billion after declining 1.0 percent and 6.6 percent in the two previous months.

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The report adds to the evidence that the manufacturing recovery has lost nearly all of the considerable momentum it had, said Paul Ashworth, U.S. economist at Capital Economics Ltd.

“Admittedly, headline durable goods orders increased by 0.3% month-over-month, but only because of a massive 75.9% m/m surge in orders for commercial aircraft. We already knew Boeing had picked up a lot of orders during the summer airshows. The problem, however, is that Boeing won't be delivering on these orders for potentially several more years, and that's assuming they aren't canceled at some point.”

Overall, Ashworth states that the rebound in manufacturing was one of the bright spots in an otherwise disappointing recovery.

“Take it away, throw in a relapse in housing, and you don't have much left,” he added.