The numbers: Orders for long-lasting goods fell in July for only the second time in 15 months, but the weakness was mostly in new airplanes. Demand was strong in other parts of the U.S. economy despite broad shortages of labor and materials.
Orders for durable goods slipped 0.1% last month, the government said Wednesday. Economists polled by the Wall Street Journal had forecast a 0.5% decline.
Yet if transportation-related goods such as autos and airplanes are set aside, new orders rose 0.7% last month. The numbers are seasonally adjusted.
The coronavirus delta variant had little impact on the economy in July, but fresh evidence suggests growth suffered a little in August. Service providers such as restaurants or airlines were hit while manufacturers appeared largely immune.
Big picture: Manufacturers have led the U.S. economic recovery during the pandemic and there’s still plenty of demand for their products. Their biggest problem is getting critical supplies and finding enough workers to staff their plants.
Automakers, for example, can’t get enough computer chips to keep new cars rolling off assembly lines. Auto dealers have limited numbers of cars for sale and many are being sold even before they get to the lot, a shortage that’s pushed prices to record highs.
These widespread shortages have acted as a drag on the economy and are likely to persist for months, potentially robbing the recovery of some momentum in the third and fourth quarters.
Key details: Orders for new airplanes sank almost 50% in July, but the decline is typical of the lumpy nature of contract signings during the summer. Orders had soared in the prior two months.
Orders for new autos, meanwhile, rose 5.8% to offset some the weakness in planes. Automakers can’t fill those orders as quickly as they normally do because of the computer chip shortage, but demand for new cars and trucks appears to be as high as ever.
At the same time, though, the increase in July was a bit of a mirage. Automakers kept most of their plants open in a month when they usually shut down for a few weeks to retool. As a result, the government’s seasonal adjustment process exaggerated the increase.
New orders were generally strong outside transportation. Bookings also rose for primary metals, machinery and computers, for instance.
Business investment was flat in July, meanwhile, reflecting the weakest reading in five months. These so-called core orders are viewed by investors as a signal of future business prospects.
Business investment has risen more than 15% over the past year, but the rate of growth has slowed for three straight months from a recent peak of 25.8%. Part of the dropoff is the natural result of the economy almost fully reopening and the end of massive federal stimulus payments.
What they are saying? “The underlying trend of demand for durable goods remains at very elevated levels and should support sustained production into 2022 as supply issues are eventually resolved,” Citibank economists Andrew Hollenhorst and Veronica Clark said in a note to clients.