We found no good news in the Durable Goods Orders Report for the month of June. Others pointed to a gain in non-defense capital goods ex-aircraft as reason to cheer, but not here.
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Durable Goods Orders were reported on Wednesday morning and contributed no reason for stocks to stabilize (so they didn't). June's Orders fell a full percentage point, where economists expected a one point gain, based on Bloomberg's survey (not the mayor - he's busy raising 2nd Avenue and subway fares). The drop followed a revised worse 0.8% slip in May. Like the headline, there really was not much good news to be found within the details of the data either, except perhaps in autos and a few other segments discussed below.
Report Details & Analysis
Economists and investors often like to pull the big-ticket transportation segment from the measure in order to get to less skewed data. We are sorry to report though, that excluding almost anything did little good this time around. Excluding transportation was useless, as orders still fell by 0.6%. Excluding defense orders did little good as well, as the data mine produced another decline of 0.7%.
Transportation Orders have been horrible of late, and should be a red flag to airline investors (though we hear the companies are reporting profits while paying pilots minimum wage). Transportation orders have declined four of the last five months, and dropped 2.4% in June (that's $1.1 billion worth of orders - no small change). The news came counter to decent airplane orders reported by Boeing (NYSE: BA) that same day. Boeing's shares still took a hit though, on lower revenues, earnings and a warning about defense cutbacks.
Manufacturing saw a 1.3% drop in orders. We have been warning for some time now that manufacturing, the one positive driver of economic revival, was wearing thin. We've now seen workweek hours cut back and regional excitement in New York, Philly and Chicago trimmed. Finally, manufacturing orders confirm there will be one less column holding up the economy in short time.
Remember how we keep hearing about the strength in technology orders, again repeated by the Fed Chairman last week? Well, according to the latest durable goods survey, we're not so sure even that is holding up. According to the report, New Orders for Computers & Electronic Products fell 1.9%. Be careful though before selling your Apple (Nasdaq: AAPL), Dell (Nasdaq: DELL) and Microsoft (Nasdaq: MSFT), since this category seems to be skewed this month by semiconductor orders (maybe look for warning signs from Taiwan Semiconductor (NYSE: TSM), which reports this week). Remember, though, that Intel (Nasdaq: INTC) posted strong results recently. Still, we attributed those to pent-up demand, not economic revival. In any event, the subcategory, Computers & Related Products saw orders rise 2.5%; good news for Dell, Sony (NYSE: SNE) and the box maker boys.
Non-Defense Capital Goods Orders Ex-Aircraft is seen as a measure of business investment. Well, it rose 0.6% in June. Woo hoo! No, "boo hoo" is more like it. This category was up 4.6% in May, after a disappointing April decline of 2.8%. The slow down in the pace of growth is disturbing, and complements much of the other data we've cited here of late. This is showing the pace of economic expansion is slowing. We remind that what usually follows deceleration is complete stoppage, and perhaps even reversal. Can you say double-dip boys and girls?
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