July's Durable Goods Orders Suggest Economy Is Stronger Than It Really Is

A leap in July orders for long-lasting goods ranging from microwaves to airplanes suggest U.S. economic activity is stronger than it really is.

Orders grew 22.6 percent over the month from June, 8 percent more than economists polled expected, due to a more than 300 percent rise in commercial aircraft orders, the Commerce Department said Tuesday.

“Since GDP measures output produced rather than orders received, this won’t boost GDP until those orders are completed late this decade,” Paul Dales, senior U.S. economist for Capital Economics, wrote in a research note Tuesday.

The overall increase is the steepest since 1992 and reflects strong sales at aircraft manufacturer Boeing Co. (NYSE: BA). Boeing reported a record 324 planes sold in July for about $80 billion, though only two-thirds have showed up in the federal data so far, according to Michael Montgomery, U.S. economist for IHS Global Insight.

“It was still a great month excluding the Boeing blowout because motor vehicles orders spiked by double digits due to abnormal strength in July,” Montgomery said.

Excluding transport orders, durable goods orders fell 0.8 percent, after rising 3 percent in June. As for current activity, shipments of nontransport, nondefense goods increased 1.5 percent in July. This suggests business investment in equipment is on track to rise rapidly in the third quarter, Dales said.

“With some producers starting to push up against capacity constraints and loans to businesses rising at a rapid rate, we suspect that investment will prove to be one of the economy’s bright spots in the second half of this year,” Dales said.