Durable Goods Unexpectedly Jump As US War Machine Goes Into Overdrive

July 31, 2022

With PMIs sinking rapidly and macro surprise indices crashing, analysts finally lost the faith and after months of expectations for continued rises in US durable goods orders, in June consensus finally dipped to -0.4% for May. It turns out that for the second consecutive month, they were ‘under’-optimistic as durable goods orders surged 1.9% MoM, up more than double from 0.8% in May, and rose a generous 11.8% YoY NSA.

While headline durables were stellar, rising at the fastest pace since January, the rest of the data was mediocre at best:

New orders ex-trans. rose 0.3% in June after 0.5% rise, beating est. of 0.2%
New orders ex-defense rose 0.4% in June after 0.7% rise
Non- defense capital goods orders ex-aircraft rose 0.5% in June after rising 0.5% in May, beating est. of 0.2%

Ok fine, but it is the headline data that feeds into GDP, so we should at least find out what caused the transportation-related burst? And the answer is two fold: first, transportation new orders jumped 5.1% MoM as US automakers apparently got a new batch of chips allowing them to complete whatever legacy production was halted.

But a far bigger reason for the surge in headline durables was a much simpler one: the war in Ukraine. That’s right, as the chart below shows, the monthly increase in Defense aircraft and parts Durable new orders soared by $10.5 billion (not seasonally adjusted), the third biggest print on record, and not too far off the $13.4 billion record set in the weeks after the Sept 11 war.

It’s almost as if the war in Ukraine is a US proxy war…

And yes, this is another example where the US gets to benefit from outsized war spending: as Bloomberg noted in the aftermath of the Durables report, while there have been some fears that the Q2 GDP figure could print negative once again, “this morning’s data makes that outcome look less likely. Durable goods orders surprised to the upside across every category, though there were some slight downside revisions to May’s core orders figures.”

So yes, all those billions spent on the Ukraine’s Vogue darling…