U.S. Durable Goods – Jun 2018

Released Friday, July 27, 2018

Download PDF version hereDurable Goods Orders: +1.0% month-over-month (Cons: +3.0%); +3.2% year-over-year
Durable Goods Shipments: +1.7% month-over-month; +7.7% year-over-year
NDCGXA Orders: +0.6% month-over-month (Cons: +0.5%); +8.3% year-over-year
NDCGXA Shipments: +1.0% month-over-month (Cons: +0.4%); +7.5% year-over-year

Quick Take:
Durable goods orders rose less than expected in June while orders for non-defense capital goods ex-aircraft (NDCGXA) were higher than economists’ expectations. NDCGXA orders rose +0.6% in June, while May’s rise was revised up to +0.7% from +0.3% originally.

NDCGXA orders, which are a good proxy for business CapEx, rebounded in Q2 after decelerating in Q1. On an annualized basis, NDCGXA orders rose +10.9% quarter-over-quarter in Q2, up from +1.5% growth in Q1. While momentum has picked up in recent months, year-over-year growth in NDCGXA orders was +8.3% as of June, only slightly higher than the average growth of +7.8% over the past 12 months and down from the recent high of +13.3% in September 2017.

Taking a step back, the current pace of growth in NDCGXA orders is consistent with moderate pace of economic growth. In 2010 and 2011, during the early phase of the economic cycle, NDCGXA order grew by an average of +12.3% year-over-year, well above the levels of growth seen over the past two years. While corporate tax reform has given businesses a marginal reason to increase investment spending, we view business CapEx as unlikely to materially accelerate given the limited amount of economic fuel remaining in the current cycle.

Notable Data:
NDCGXA orders were up +8.3% year-over-year as of June, up from +6.9% growth in May.

The strength in NDCGXA orders in June was driven by increases in electrical equipment, appliances, and components (+1.5% month-over-month) and computer and electronic products orders (+0.6% month-over-month). Machinery orders, which make up approximately half of NDCGXA orders, rose +0.2% month-over-month.

NDCGXA shipments, which typically move in tandem with NDCGXA orders and flow into GDP readings, were also stronger than expected, rising 1.0% month-over-month in June. NDCGXA shipments were up +7.5% year-over-year, up from +6.4% growth in May. NDCGXA shipments were up +4.6% quarter-over-quarter in Q2 on an annualized basis.

U.S. Real GDP – Q2 2018 (Advance Estimate)

Released Friday, July 27, 2018

Download PDF version hereReal GDP: +4.1% quarter-over-quarter (annualized rate) (Cons: +4.2%), +2.8% year-over-year
Real Final Sales: +5.1% quarter-over-quarter (annualized rate), +3.0% year-over-year

Quick Take:
The advance estimate of Q1 real GDP growth was 4.1%, slightly lower than economists’ estimates for 4.2% growth. The report also featured revisions dating back to 1929. Revisions resulted in a cumulative upward revision of GDP by 5.5% over that time period, although the impact on any single quarter or year was de minimis. On a year-over-year basis, Q2 real GDP grew 2.8%, the fastest pace of year-over-year growth since Q2 2015.

Growth in Q2 was largely driven by personal consumption expenditure (PCE), which contributed 2.69 percentage points (ppt) to quarter-over-quarter growth. Personal consumption was atypically soft in Q1 and Q2’s strong personal consumption growth partly reflected a rebound effect.

Quarter-to-quarter GDP growth can be volatile and, while we acknowledge the strength in Q2 GDP, we view the underlying trend in U.S. economic growth as likely to remain on a slow-to-moderate pace. We point to 2014 when real GDP growth reached 5.1% in Q2 and 4.9% in Q3, however full-year GDP growth measured a more subdued 2.5%. Year-over-year growth of 2.8% as of Q2 2018 tells a similar story. In addition, the current economic cycle has aged another 3+ years since 2014, meaning there are even fewer sources of fuel for a sustained economic reacceleration moving forward.

Notable Data:
Q2 2018 marked the fifth consecutive quarter in which quarterly growth exceeded 2% at an annualized rate.

PCE growth was 4.0% quarter-over-quarter in Q2, up from 0.5% growth in Q1 2018. As mentioned earlier, PCE contributed 2.69 ppt to real GDP growth, the highest contribution since Q4 of 2014. Goods consumption rose 5.9%, up from a 0.6% decline in Q1. Motor vehicles and parts were up 8.4% in Q2, rebounding from -12.7% growth in Q1 2018.

Fixed Investment contributed 0.94 ppt to Q2 real GDP growth, down from 1.34 ppt in Q1. Equipment investment added 0.2 ppt to growth, down from 0.5 ppt in the prior quarter.

Change in Private Inventories detracted -1.0 ppt from real GDP growth in Q2. Real Final Sales, which excludes the inventories component and is a less volatile version of economic growth, grew 5.1% in Q2, the highest pace of quarter-over-quarter growth since Q1 2006.