- by New Deal democrat
This is another one of those weeks when most of the important new data is crammed into one day, in this case Q2 GDP, personal income and spending, and jobless claims all will be released on Thursday.
Today we did get some further information on manufacturing, and the positive news in that sector continued, as new orders for durable goods (blue) increased 0.3% in June, and core capital goods orders (red) increased 0.9%. Since these are “official” (short) leading indicators, it is worth paying attention to them:
The former series in particular is noisy; hence the increased emphasis on the core. But it’s easy to see that both have been in an increasingly sharp positive trend since late 2024, interrupted somewhat in the months surrounding the T—-p Administration’s first imposition of widespread tariffs in April of last year.
This is in accord with what we have been seeing in the new orders components of the regional Fed manufacturing indexes. The average of the NY and Philadelphia indexes (gold, right scale) are shown below for comparison:
With the exception of early 2022, the regional Fed indexes have maintained a trend similar to the monthly durable goods orders reports.
The picture becomes more complicated, however, when we compare the durable and core capital goods orders metrics with the industrial (gray) and manufacturing (gold) production data (right scale):
Durable and core capital goods orders have risen over 35% since just before the pandemic, while production is up less than 1%, and manufacturing production slightly *below* their pre-pandemic level.
This brings up something that is important in the current environment, which is that the durable and capital goods orders metric are reported in nominal $ terms. Which means that, adjusted for inflation, the situation might be quite different. Below I show what both new orders metrics look like deflated by the PPI for finished goods, in comparison with manufacturing production:
Now the series look very similar, not only in terms of the trend, but also in their absolute values compared with just before the pandemic. Let me state right up front that there may be a better deflator or combination of deflators that may be better than the one I have used above, but it demonstrates that inflation has been distorting to the upside the positive trend in new orders.
In other words, postive, but not so much.
