Durable goods orders fell in September for the second month in a row, driven largely by drops in Boeing orders. According to the Commerce Department, orders for goods that last three years or more fell 0.8% on a monthly basis, following a downward revision of another 0.8% drop in August.
However, our main focus is always on the core capital orders and shipments, which better represent business investment in equipment because they exclude aircraft and defense spending. Core capital orders rose 0.5% on the month, and also 0.5% on a three-month average annualized pace. That should alleviate some concerns over a slowdown in private investment next quarter that might chip away some of the growth gains.
For the third quarter, shipments of core capital goods dropped 2.8% on a three-month average annualized pace, driven by a 0.3% drop in September. The drop was larger than expected, putting some downside risk to our call for a 3.2% increase in overall GDP for the third quarter.
However, ahead of Friday’s data release, we expected there might be some upside risks around consumer spending, which now should be able to offset the unexpected weakness in investment spending.
The durable goods data is one of the last data points before we get our first GDP estimate next week. The last main data point will be September inventory data, released one day ahead of the GDP release. Investment and inventories are often the most volatile and unpredictable components. At the moment, we are comfortable with our 3.2% call, which should imply a robust American economy ahead of the holiday season.
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